Global LEIs–Never Mind the Quality Feel the Width

Written by Brian Clarke on

The availability of a Global LEI System (GLEIS) has, for many years, been touted as a panacea for regulatory compliance and risk management (along with the ability to analyse systemic risk both at the level of regulator and firm). To date, though, it seems that little progress is being made in these areas in the use of the LEI, with a key action relating to hierarchical data still missing. Historically, a number of vendors have offered similar, mature systems with a full set of hierarchical data but nothing immediately comparable with the LEI. The links between these proprietary systems and the LEI have had to be developed and, of course, checked for accuracy and maintained. Needless to say, access to this data will come at a price but it is highly unlikely that all (except the very largest firms) will be able to take the free-of-charge-download from the Global Legal Entity Identifier Foundation (GLEIF) site, and maintain the data themselves, including the not, as yet, available hierarchical data.

In the rush to move forward, the emphasis, so far, has been on the quantity of LEIs issued. This has come at the expense of quality. It seems that it is more important to keep plugging the number of LEIs that have been issued, ignoring the fact that the quality of data is suffering. This could be likened to digging a hole whilst others are filling it in. The GLEIS has reached a milestone by providing a consolidated database from all the Local Operating Units (LOUs). Or are they still pre-LOU? The GLEIF, on its website, is keen to point out that "The GLEIF does not modify any of the original source files and performs no data checks". The reference to data checks is a little worrying, as indications from some quarters is that the GLEIF is playing a key role in assuring data quality!

In a recent whitepaper from March this year, Alacra Inc. carried out a comparison between their entity identifier universe and the LEI universe. Alacra noted that there were 215,813 entries in their own 'proprietary' database versus 336,480 LEIs issued, with an overlap of just 26,381. This is surprising in that Alacra tracks all entities that have either a debt or equity listing on a global exchange. Of these 88,177 entities, only 15% have been assigned an LEI. This situation will surely improve (given that the LEI system is starting from a very poor position), but how quickly and with what level of disruption? There are other interesting statistics that appear to challenge the idea that the LEI will be a panacea for a number of areas of regulation, risk assessment and systemic risk analysis. The whitepaper is available here.

The aforementioned whitepaper is the first I've seen that highlights the many data quality and data hierarchy challenges that the GLEIS still faces, without being specific or critical. This is in contrast with other entity reference data vendors who seem positively upbeat (despite also highlighting the challenges ahead).

A number of articles have expressed the need for better communication by the regulators and GLIEF concerning the tangible benefits to be derived from the GLEIS, backed up by the communication of real experience from regulators and financial firms that have realised actual tangible benefits.  The regulators must mandate the use of the LEI where applicable and enforce this - otherwise its use will continue to drift slowly forward.

Clearly, lessons will be learnt regarding the LEI but anyone involved in regulatory reporting or on-boarding should expect an unsettled path for the foreseeable future.

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