By Linda Powell, Chief Data Officer at the Office of Financial Research (OFR) in the U.S. Treasury Department and an OFR representative on the Legal Entity Identifier (LEI) system’s Regulatory Oversight Committee
The Legal Entity Identifier (LEI) is a unique, 20-digit identifier, like a bar code, that will make it possible to identify all the legal entities involved in the thousands of financial transactions that happen around the world every day — and that’s good news for developers in the field of financial technology.
We expect the LEI to allow financial technology developers to delve into industry sector analysis, especially in the nonbank financial sector. Using the LEI, they also will be able to write applications that analyze connections and linkages between companies and datasets.
The LEI will allow the precise identification of financial institutions, which can sometimes have similar names. The LEI also should significantly reduce the burden and cost of cross-referencing data by becoming the key for linking financial datasets to one another.
In addition, this tool will allow developers to build data quality applications for reference data, which is basic information about legal entities.
In the future, the LEI is expected to enable developers to build applications that track the complex hierarchies and networks of ownership, and control of corporations and holding companies.
It sounds revolutionary, but essentially the LEI is nothing more than a static code of letters and numbers connected to basic information describing a company. Think of the LEI as a bar code identifier for entities that engage in financial market transactions.
Financial companies and information technology professionals worldwide have been attempting to develop a standard identification system for financial market participants for about a decade. But reaching consensus on such a huge undertaking was difficult.
The financial crisis showed industry and regulators the value of a global identifier system for risk management and regulatory oversight, and created an urgency to establish the LEI system.
Now the LEI is being adopted on a global scale. For example, its use is now required in swap data reporting, which is benefitting the public by supporting financial stability. Globally, a dozen early-stage registrars have issued more than 220,000 LEIs in 173 countries. In addition, the Global LEI Foundation recently nominated 16 directors, which is key to governance for the system.
Because the LEI is free, open source, and has no intellectual property restrictions, we anticipate financial technology developers to find it an excellent resource. The LEI is already having an effect in the marketplace. Some major information and data vendors already are beginning to incorporate LEI in their products.
Two helpful websites to search for LEI data include www.openleis.com and www.p-lei.org.
The technical specifications for the LEI are in ISO Standard 17442 (www.iso.org). To find the technical specifications for the overall global LEI system check the Regulatory Oversight Committee website at www.leiroc.org.
For more information about the LEI, see the LEI Primer by the Office of Financial Research (OFR) in the U.S. Treasury Department.