GLEIF: The Power of LEIs to Transform Client Lifecycle Management in Banking

Stephan Wolf

Chief Executive Officer at Global Legal Entity Identifier Foundation
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GLEIF: The Power of LEIs to Transform Client Lifecycle Management in Banking

04.11.2019 06:10 am

The Global Legal Entity Identifier Foundation (GLEIF) is a not-for-profit organization created by the Financial Stability Board (FSB) in 2014 to support the implementation and use of the Legal Entity Identifier (LEI). The LEI is a unique code that can be used universally to enable the clear and unique identification of legal entities. With its primary use to identify participants in financial transactions, the LEI has global relevance for businesses across sectors.

Stephen Wolf was appointed CEO of GLEIF in 2014. He has extensive experience in establishing data operations and global implementation strategies and has led the advancement of key business and product development strategies throughout his career. Stephan is also a co-convener of the International Organization for Standardization Technical Committee 68 FinTech Technical Advisory Group (ISO TC 68 FinTech TAG). In January 2017, he was named one of the ‘Top 100 Leaders in Identity’ by One World Identity.

Financial IT spoke with Stephan about GLEIF, the organization’s history and the benefits of the LEI for all entities operating in the global digital economy. We also discussed the findings of recent research from GLEIF and McKinsey & Company which revealed that wide adoption of LEIs could save the global banking industry an estimated U.S.$2-4 billion per year

Financial IT: Could you explain more about GLEIF and why it was established?

Historically, it has been very difficult to accurately identify legal entities on a global level. The lack of a universal entity identifier, and the resulting lack of transparency has ultimately led to financial crises, fraud and market abuse. The concept of the LEI was born from the global financial crisis of 2008, when regulators and capital market players needed to quickly assess the extent of market participants exposed to Lehman Brothers and each of its hundreds of subsidiaries. This crisis uncovered a critical need for a system which could identify and understand exposures at the legal entity level, instead of the aggregate, parent-company level. If it had been available at the time, a system that assigns an electronic, standard entity identifier to legally distinct parties would have helped to fill this gap. This was the reason why GLEIF was established.

The Financial Stability Board (FSB), together with the finance ministers and central bank governors represented in the G20, advocated developing a universal LEI for any legal entity involved in financial transactions. The LEI Regulatory Oversight Committee (LEI ROC), a group of representatives of public authorities from around the globe, was established in January 2013 to coordinate and oversee a worldwide framework of legal entity identification, the Global LEI System. GLEIF was created in June 2014 ensure the operational integrity of the Global LEI System, with the vision of enabling people and businesses worldwide to make smarter, less costly and more reliable decisions about who to do business with.

GLEIF manages a network of partners, known as the LEI issuing organizations, to provide trusted services and open, reliable data for unique legal entity identification worldwide.

GLEIF maintains the Global LEI Index, the only online global source that provides open, standardized and high quality legal entity reference data. GLEIF also makes available the technical infrastructure to provide access to the full global LEI repository free of charge to users, via an open data license.

Financial IT: What is an LEI?

An LEI is a unique, 20-digit, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). Each LEI connects to key reference information describing a legal entity, including its ownership structure, against third party sources. It essentially provides all of the relevant information which details ‘who is who’ and ‘whom owns whom’. LEIs are published alongside the corresponding reference data in the Global LEI Index, which is verified at least annually by GLEIF accredited LEI issuers to ensure that reference data is accurate and up to date. 

Financial IT: Why do we need LEIs?

The LEI connects the dots for entity identification in the digital age. There are millions of businesses operating across the world today and as a result, identifying who’s who, who owns whom, and who owns what poses a significant challenge. Current identification processes have significant manual components and often require the use of multiple databases in which a counterparty may be identified by a different name. For banks and other participants in trade transactions, knowing your counterparty and who owns your counterparty are extremely important elements of risk management. But many banks and corporations still use names rather than identifiers, resulting in confusion. As an example, a large bank’s client services division recently found that it had an average of five names—with minor variations in its database—for the same organization. Additionally, commonly used databases, different divisions and IT systems within organizations can all have varying versions of the same entity’s name. This makes it harder to trace and to link information from multiple sources and know exactly ‘who is who’, in any kind of business transaction.

Financial IT: How can a business acquire an LEI?

It’s a simple process. Any company that wishes to obtain an LEI chooses its preferred business partner from the list of GLEIF-accredited LEI issuing organizations, available on our website. Through self-registration, a legal entity then supplies accurate reference data. This reference information is validated against third party sources before it’s hosted online for all to use free-of-charge.

Financial IT: What are the benefits of the LEI in addressing market challenges?

Wider use of LEIs in international business transactions could create transformational change. The number of use cases is almost unlimited, from cross-border trade, customs declarations, e-invoicing and real-time payments, to documentation and reporting. By replacing siloed and duplicate processes, and information with a standardized approach, LEIs take the complexity out of business transactions, simplify identity identification and accelerate growth.

Since their introduction, LEIs have allowed public authorities to better evaluate risks, make corrective steps and improve data integrity. And they’re giving businesses the confidence they need to engage in transactions with total visibility, greater certainty and improved control.

The LEI allows costs to be reduced, operations to be accelerated and deeper insights to be gained into the global marketplace. This means businesses won’t lose time and money due to inefficient processes. They can make smarter, less costly and more reliable decisions about who to do business with, because the LEI becomes the common link that pieces all records associated with an organization together. This provides certainty of identity in all online interactions and makes it easier for everyone to participate in the global digital marketplace.

Statistical analysis, market surveillance and consumer protection are vital for any society. The LEI would also reduce the burden for corporates, especially SMEs, in their interaction with Government organizations while maintaining high visibility for regulators.

We believe that each business worldwide should have only one global identity and see the LEI as key to meeting this objective. We are continuing our mission to increase the rate of LEI adoption, initially in banking use cases beyond regulatory reporting and then in other sectors where entity identification and verification is critical, such as supply chain and B2B digital commerce.

Financial IT: You mentioned banking use cases, could you tell us more about the results of GLEIF’s latest research with McKinsey?

This research, which was conducted by McKinsey on behalf of GLEIF and published in Q4 2019, concluded that wider use of LEIs across the global banking sector could save the industry U.S.$2-4 billion* annually in client onboarding costs alone. With estimated total industry spend on client onboarding equal to U.S.$40 billion per year, productivity improvements gained through LEI usage could generate cross-sector cost reductions of between 5-10% annually. And, these figures don’t take into account the additional savings on offer for bank counterparties, which could be huge.

This research makes clear that the ability of LEIs to simplify entity identification in the digital age has the potential to unlock substantial and quantifiable value for banks and their customers in the near to mid-term. To realize this value, GLEIF encourages banks and larger corporates to consider the use of LEIs to support all stages of the customer management lifecycle, not just in capital markets – where its use for regulatory reporting is mandated - but across all banking business lines, such as trade financing, corporate banking and payments.

In addition, wider use of LEIs could also address common ‘pain points’ in counterparty identification during client lifecycle management, such as the manual linkage of disparate data and the difficulty in accessing entity legal ownership structure. The LEI could additionally help mitigate compliance and credit risk, as it gives banks more holistic views of clients across internal and external data sources.

With so much to gain, banks should welcome the opportunity to make LEIs foundational to customer lifecycle management processes across all areas of business. Compliance driven adoption in capital markets means that banks are already familiar with the LEI. Voluntary expansion of LEI usage into other business banking lines is the new frontier in progressive thinking and can only lead to a win-win situation for both banks and their clients.

Financial IT: How will GLEIF use the results of this research?

As a next step following this research, GLEIF is evaluating the feasibility of changes proposed by McKinsey, including an evolution of the Global LEI System. This is because banks are multipliers, connected to almost all legal entities, and businesses always need a bank account. GLEIF will assess actions it can take to encourage banks to voluntarily adopt LEIs more broadly, such as enhancing the value proposition of the LEI by making it a data connector which links to the most commonly used data sources. 

To ensure that the future evolution of the Global LEI System is fully informed by, and in line with, the banking sector’s requirements, GLEIF aims to conduct its assessment on the report’s proposals with maximum engagement from the global banking community.

To support that objective, financial institutions are strongly encouraged to join the GLEIF Globally Important Financial Institutions (GIFI) Relationship Group to participate in the ensuing discussion on the support needed for banks to integrate the LEI into client management processes.  

Our overall objective is for the Global LEI Index to provide a 360-degree view of entities engaging in financial transactions globally.

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