FSB to Create Global Numbering System for Financial Transactions - June 1, 2012
June 1, 2012
The Financial Stability Board (FSB) held a meeting in Hong Kong this week and agreed to create a new worldwide “Legal entity identifier” (LEI) system that would assign a unique identifying number to every party to a “financial transaction.” The FSB was established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies.
The LEI numbering system would be “in line with” the existing ISO (International Organization for Standardization)17442:2012 standard that assigns numerical identifiers to financial institutions, and is envisioned to come into force by March 2013. ISO currently has 164 member countries (http://www.iso.org/iso/iso_members). Additional details regarding the FSB’s proposal for creating the LEI system will likely be released at the upcoming G20 Los Cabos Summit in Los Cabos, Mexico later this month.
It appears as though the LEI system may be focused primarily on derivatives transaction but other types of financial transactions appear likely to also be subject to the proposed LEI system, depending on the yet-to-be-released details of the LEI proposal. The LEI system will likely be designed to capture information about the structure and legal description of financial contracts (such as the rights and obligations between counterparties) as well as data on financial assets or liabilities held on a financial company’s balance sheet that are affected by the financial transaction.
The impetus for this LEI standard appears to be related to Section 154 of the United States’ Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the U.S. Financial Stability Oversight Council’s Office of Financial Research to collect this sort of financial transaction information. Three agencies that are members of the U.S. Financial Stability Oversight Council – the Board of Governors of the Federal Reserve System, the U.S. Securities & Exchange Commission and the U.S. Department of Treasury – are also members of the FSB and may have played a role in the LEI initiative.
The World Council will be monitoring these developments in order to gauge the LEI system’s potential impact on credit unions. Other issues discussed at the FSB meeting include regulation of over the counter (OTC) derivatives, shadow banking, and other financial system vulnerabilities. The FSB’s press release can be accessed here.
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