It might seem crazy to argue with SIFMA president and CEO Kenneth Bentsen Jr. writing to Treasury Secretary and FSOC Chair Jacob Lew advocating a wider regulatory mandate for Legal Entity Identifiers, but here goes.
Of course a wider regulatory mandate will increase and accelerate adoption. If regulators worldwide grabbed their sticks and lightning bolts firmly and said, “Thou must use LEIs,” more LEIs would be registered for and used. And at this point it would be disastrous. Here’s why:
- This isn’t working well now, so adding more LEIs (and more LOUs) would be like throwing gasoline on a fire. Although the LOUs have recently defined a common file format, not enough of what happens at each of the LOUs is consistent. Data quality and validation, timing, duplicate checking – all the database procedures that a Central Operating Unit would provide guidance for are non-existent. Absurdistan seems to be an apt description.
- More use cases would likely add more variability to the data. What’s needed is consistency on a core set of entities for a core set of data.
- The entire enterprise is unfunded. There’s no budget for the COU, which ideally would have been established first, before pre-LOUs started registering entities.
- The definition of what entities actually need to have an LEI is unclear and therefore all sorts of entities that don’t need one, have one. The database will only become more polluted with more LEIs and use cases.
- The initial idea behind assigning LEIs was to facilitate the measurement of systemic risk by financial regulators and the measurement of counterparty risk by financial institutions. Additional, inconsistently assigned LEIs make these goals harder to achieve.
If the Metropolitan Opera House in New York has an LEI, should all opera houses around the world have an LEI? Are the YMCAs that currently have LEIs different from all the other YMCAs in the world? Wimbledon has an LEI but Roland Garros does not. Is there a reason? This endeavor still needs leadership, management and a plan. Let’s sort that out before anything else.