Using unique alphanumeric identifiers for financial firms would improve OTC derivatives markets, make it easier for regulators to see aggregated risk, and, once systems were changed over, would simplify record keeping, improve operational efficiency for firms and eliminate a lot of reconciliation work, according to a report the BIS issued from the Committee on Payment and Settlement Systems and the Technical Committee of IOSCO.  But the report stops short of advocating that regulators require the LEI.  Adoption of the LEI could be beneficial, the report says. Venturing even further, “The Task Force recommends the expeditious development and implementation of a standard LEI…” (One sentence on international work-streams runs to 97 words of banker-speak) They bravely call for continued international consultation.  This reminds me of a comment by the head of Nordea at the SWIFT Sibos conference a few years ago — he suggested that bank executives try to figure out how many man-hours of staff time were going to external meetings for standards development, industry committees and similar activities. The BIS recommendations could keep committees running for a couple of years while doing nearly nothing to reduce risk.  Even while saying LEIs would benefit the economy, reduce risk, and improve operational efficiency, the BIS stops short of calling for them to be legally required by national governments.  But a key point of the LEIs is that they really only works if they are adopted globally.  “Many voices have suggested that some form of legal compulsion could aid moves to establish an LEI,” notes the report, safely in the passive voice lest someone figure out who was calling for regulation. It stops short of calling for LEIs’ to be required.  What are they afraid of?  If a handful of money center regulators — North America, UK, EU, Japan, China, Hong Kong, Singapore and Sydney — required their institutions to use globally recognized LEIs, and in turn require their counterparties to use LEIs, the issue would be pretty much solved.  Perhaps some bankers will calculate the monthly opportunity cost of using existing disparate identifiers and manual reconciliation. Then add up staff time flying around the world to meet with regulators and standards bodies on LEI design, adoption, etc. Then they could ask for some economists who aren’t too fussy about needing hard data to reach their conclusions — S&P might have a few to lend — to calculate the total cost. Then perhaps they would look for action rather than calls for more international consultation.  Some free advice for BIS:  From a long forgotten sub editor: Eschew obfuscation Nike: Just Do It
LEIs would be good for banks, regulators and the global financial system, but the BIS stops short of saying they should be required.