In the world of KYC, Google has become a ubiquitous component of client onboarding, CDD, EDD and Vendor Due Diligence best practices. Searches are often written once and then enshrined in procedures. As a supplement to checks against traditional sanctions, public record, PEP, criminal record, litigation and specialized adverse media providers, a Google search can reveal valuable, risk relevant insights. However, a simple Google search on the subject name will return a great number of results, most of which are neither adverse nor relevant. Many financial institutions attempt to reduce the results to a more manageable quantity by using Boolean logic. That’s where it gets a little tricky.
Google’s search algorithm evolvesGoogle is often admired for its agility, and its ability to create, deploy, assess market demand for and decide the fate of new products in a matter of days. The search algorithms are similarly agile, constantly changing to improve the search experience. For this reason, the search string entered today may yield different results tomorrow. Why is this?
Google’s algorithms learn something about your preferences every time you search. Future search results are then ordered based on your implied areas of interest. So your employees’ lunchtime surfing activities could lead to different search results from different users.
Publishers have access to a powerful range of SEO tools and are constantly working to make sure their results are as high on the search results list as possible. Google, from time to time, will improve the algorithms. A recent example is that when you search from a mobile device, priority is given to content that is highly compatible with the mobile devices, potentially demoting relevant information.
You say tomato, I say tomato
Google operates country specific domains, each of which presents search results with a geographical preference. So if like the former British Empire, the sun never sets on your KYC process, you could see significantly different news results depending on which country the search is conducted in. Try searching for “Parliament” at www.google.com, www.google.co.il and www.google.co.uk.
Do you speak Google?
Seasoned investigators, IT professionals and programmers share a common language of syntax, operators, wildcards and other tools that help target and refine searches. The challenge is that Google’s syntax is dynamic and unique. For example:
Of course in the above examples, as the search results are the same, it doesn’t really matter if you have redundant AND, parenthesis, ~ or + operators. However, there are other scenarios in which knowing how to speak Google will improve your results:
“one OR two OR three OR four OR five OR six OR seven OR eight OR nine OR ten OR eleven OR twelve OR thirteen OR fourteen OR fifteen OR sixteen OR seventeen OR eighteen OR nineteen OR twenty OR twentyone OR twentytwo OR twentythree OR twentyfour OR twentyfive OR twentysix OR twentyseven OR twentyeight OR twentynine OR thirty OR thirtyone OR thirtytwo OR thirtythree”
and you will receive the following error message:
"thirtythree” (and any subsequent words) was ignored because we limit queries to 32 words.
The Federal Reserve Board on Monday announced a proposal that would require banking organizations to include their existing Legal Entity Identifiers (LEIs) on certain regulatory reporting forms. The LEI is a unique reference code to enable easier identification of a firm's legal entities.
During the financial crisis, regulators and the public were often unable to fully assess the extent of a firm's exposures across all of its legal entities. The LEI is a 20-character alphanumeric code assigned to a legal entity of a financial or non-financial firm, allowing more effective measurement and monitoring of the exposures of a firm's legal entities, especially in times of stress.
The Federal Reserve's proposal builds on the framework introduced by the Financial Stability Board--an international body of financial regulators that monitors and makes recommendations about the global financial system--to implement a global identifier system that would uniquely identify parties to financial transactions. LEIs are assigned by Local Operating Units of the Global LEI System, which are responsible for registering legal entities and assigning LEIs to institutions in local jurisdictions. The Global LEI System was initiated by the Financial Stability Board.
The proposal would require banking organizations to include LEIs for its relevant units on certain reporting forms as of June 30, 2015. Comments on the proposal are requested within 60 days of publication in the Federal Register.However, if you open the document, the disappointing surprise on page 7 is this:
Current Actions: The Federal Reserve proposes to collect the Legal Entity Identifier (LEI) for all banking and nonbanking legal entities reportable on the Banking, Non-Banking, SLHC, and 4K schedules (not the Branch schedules) of the FR Y-10 and on the Organization Chart section of the FR Y-6 and FR Y-7. The LEI is a 20-character alphanumeric code that is universal and uniquely corresponds to a single legal entity.1 The Federal Reserve is only proposing requiring the reporting of an LEI if one has already been issued for the reportable entity at the time of collection. At this time, the Federal Reserve is not requiring an LEI to be obtained for the sole purpose of reporting the LEI on the FR Y-6, FR Y-7, and FR Y-10.If the LEI is going to work, the Fed and other regulators will need to “require.”
Mandate that the world’s largest financial institutions register all their legal entities and demand a high level of data quality; or Pay them to comply, using funds from recently assessed regulatory penalties. Before I get into the details, some history …What’s an LEI? The idea for a “bar code” for financial market participants dates back more than 20 years.
“The LEI concept is quite simple: every financial firm should be required to have one consistent identification code (the LEI) ‐ similar to a social security number that is used anytime the firm enters into a financial transaction or trade. Similarly, any entity that engages in a transaction with a financial firm should also be required to have an LEI.” (Tom Price and David Strongin, “Why the Industry Wants Better Financial Data,” May 13, 2013)The acute need for a legal entity identification system and LEIs was spurred by the financial crisis, when financial institutions and regulators could not determine counterparty exposure to Lehman Brothers, which at the time of its bankruptcy had more than 8,000 legal entities in 40 countries. The belief was that the “counterparty interconnectedness” problem could be solved by a global entity identification system. The Dodd‐Frank Act was the first global regulation to address the counterparty risk issue and initially focused on swaps, which Warren Buffett at one time called “financial weapons of mass destruction.” Transparency, standardization and reduction of risk were acknowledged to be the critical benefits of swap data repositories, for which the establishment of a legal entity identification system was deemed imperative (“Swap Data Recordkeeping and Reporting Requirements,” Dec. 20, 2011, CFTC):
“To enhance transparency, promote standardization, and reduce systemic risk, Section 727 of the Dodd‐Frank Act added to the CEA new section 2(a)(13)(g) which requires all swaps, whether cleared or uncleared, to be reported to swap data repositories (“SDRs”), which are registered entities created by section 728 of the Dodd‐Frack Act to collect and maintain data related to swap transactions as prescribed by the Commission and to make such data electronically available to regulators. “LEIs will be a crucial tool for enabling the Commission and other regulators to search, aggregate and use the swap data reported to the SDRs for fulfill the purposes of the Dodd‐Frank Act.”Proposed benefits A GFMA (Global Financial Markets Association) presentation dated Nov. 10, 2011, called for the creation of a global legal entity identifier standard. The need for such a standard had existed for years; there was never a strong enough regulatory or commercial impetus to get the project off the ground. Two sets of benefits were highlighted in the GFMA presentation: Benefits to Regulators – a common LEI will be a powerful tool for regulators in monitoring and managing systemic risks.
Mandate that the world’s largest financial institutions register all of their legal entities or Pay them to comply, using funds from recently assessed regulatory penaltiesIt is not unreasonable to assume that 80% of the world’s systemic financial risk can be attributed to, not 20% of the world’s financial institutions, but to perhaps 2% of the world’s financial institutions. What we recommend is that regulators allocate $100 million per year so that the world’s 100 largest financial institutions can publish, on a monthly basis, their entire corporate legal hierarchies in a standard, easy‐to‐consume format. For $1MM a year these 100 financial institutions can each hire and house four people who would be responsible for collecting, understanding and publishing their firms’ corporate hierarchies with a defined set of data attributes, including the LEI. If this funding model was in place for two years, practically all the benefits to the regulators and the industry outlined above would be achieved for the financial institutions that matter. These financial institutions could then be weaned off the regulatory subsidy and pay for the ongoing maintenance themselves and could, in turn, cooperate with the LOUs to get the long tail of the financial community registered for LEIs. This could be accomplished at the time of onboarding or during the periodic KYC review. While having the regulatory authorities bear the start‐up costs for the GLEIS may seem like a radical suggestion:
The current system is in slow motion, and a strong plan to accelerate it does not exist. The money is available from recently levied fines. By paying the financial institutions to comply, the regulatory authorities can theoretically wield a stick they currently do not have.
Recent conversations with executives close to the GLEIF (Global Legal Entity Identification Foundation) revealed an underlying conflict in the creation of the LEI database. The LEI registration process and data collection activities are being optimized for three constituencies: the regulators, the registrants, and the Local Operating Units (LOUs). However, a fourth constituency, equal in importance to the other th
The GLEIF (Global Legal Entity Identifier Foundation) in concert with the GFMA (Global Financial Markets Association) held a webinar this morning to give market participants an update as to the state of the GLEIS (Global Legal Entity Identifier System). Speakers included Robin Doyle of JP Morgan, Matthew Reed of the Office of Financial Research and Stephan Wolf, the CEO of the GLEIF.
A few things that I le
Alacra UK always has a unique way of making the holiday fun and special. Hilariously ugly sweater contests are just the top of the tree so to speak. This year it looks like the lovely Victoria Todd won a “decorate your desk” contest by outdoing everyone else on decorations but also having it double as a holiday hobbit house of sorts.
Have a wonderful holiday season everyone!
LEIs Assigned to Large Fund Families
Funds of various types make up a large percentage of entities that have been assigned an LEI. The chart above highlights the number of registered funds of several large global fund families.
EBA Entities that have been Assigned an LEI