4.3 Oversight tasks related to LEI codes

The identification of participants in financial markets is one of the key prerequisites for the stability of financial markets, which is supported by the use of the LEI codes generated in a framework

of international cooperation. In the aftermath of the 2008 global financial crisis, regulatory efforts were launched on a large scale, with one of their primary objectives being the mitigation of the risks of transactions in specific financial products. As part of such efforts, pursuant to the powers conferred by the G-20 countries, in June 2012 the Financial Stability Board (FSB) issued a document entitled Global Legal Entity Identifier for Financial Markets, 56 which sets out the requirement that participants in financial markets should be assigned unique identifiers that enable the unambiguous identification of parties to any transaction.57

Among the criteria for the design of the LEI code, priority was given to wide applicability, flexibility and

fast implementation. In the design of the LEI code, efforts were made to ensure that the code provides an adequate degree of flexibility. This was necessary to enable the issuance of LEI codes anywhere in the world; for instance, differences between the character sets specific to each country also needed to be addressed. Additionally, LEI codes may also be used by certain national organisations and authorities to identify participants of the local financial market, thereby supplementing or replacing local-level identifiers. The LEI code has been designed primarily to suit the purposes of the institutions responsible for the stability of the financial system; however, due to its nature, the applicability of the LEI code is not limited to the public sector (Table 8).

Oversight of LEI code issuance operates in international cooperation, with the MNB contributing

since October 2014. LEI codes are issued locally,58 usually by an institution that is part of the financial infrastructure. The coordination of LEI issuance, the specification of requirements for organisations issuing LEI codes, and licensing are the responsibilities of an international organisation (GLEIF).59 The work of GLEIF is overseen in international cooperation as part of the LEI Regulatory Oversight Committee,60 to which the MNB has been contributing as a full member since 27 October 2014.

Table 8 Benefits of using the LEi code Public sector

1) Improvement in reported data management and in quality of analysis based on it. LEI code contributes the identifing and managing micro and macroprudential risks. 2) LEI code makes it easier to handle risks concerning crossborder transactions both for authorities and corporations. 3) Employing LEI codes contributes to better estimations of risk level emerging from winding down or resolution of a company. 4) LEI code fosters transparency of the markets and reduces the risks and frequency of frauds.

Private sector

1) Better risk managmenet at corporate level especially as for credit risk.

2) Operating efficiency through excelarating data processing and information gathering.

3) Uniforming reports towards authorities.

56 http://www.leiroc.org/publications/gls/roc_20120608.pdf 57 This makes it possible to identify not only parties to financial transactions but also their affiliated companies and company groups, thereby facilitating without limitation the assessment of the risk of financial contagion as well as the combating of money laundering and terrorism. 58 By Local Operating Units (LOU), of which there may be more than one in a single country, each LOU being authorised to issue LEI codes for more countries. 59 Global Legal Entity Identifier Foundation. 60 LEI Regulatory Oversight Committee (LEI ROC).