Journal of Payments Strategy & Systems Volume 13 Number 4

The value of the Legal Entity Identifier for the payments industry Received (in revised form): 25th October, 2019 Victoria Cleland* Executive Director for Banking, Payments and Innovation, Bank of England Gerard Hartsink** Chairman, Global Legal Entity Identifier Foundation

Victoria Cleland is the Bank of England’s have registered for an LEI. This paper describes the Executive Director for Banking, Payments and progress made in the implementation of the pro- Innovation. She leads the teams responsible gramme and sets out the potential benefits that for the operation and strategic development of LEIs offer as a global means of verifying identity payment system services, including the UK’s in payments. It describes existing plans to incorpor- real-time gross settlement infrastructure and ate LEIs into payments through the move to the the Bank of England’s wholesale and retail ISO 20022 messaging standard, and the existing Victoria Cleland banking operations, including the provision barriers to this adoption. It concludes by laying out of emergency liquidity assistance. Victoria is a ‘call to action’ to all market participants (national also a member of the Bank’s RTGS/CHAPS international, public and private) explaining the Board. She has held various roles at the Bank steps required to realise the full potential LEIs of England, including Chief Cashier, Deputy can bring to the payments industry and the wider Head of the Bank’s Special Resolution Unit, economy. Private Secretary to the Deputy Governor and Senior Manager in the Market Infrastructure Keywords: FSB, Bank of England, GLEIF, Division. LEI Regulatory Oversight Committee, ISO 17442 LEI, ISO 20022, Legal Entity Gerard Hartsink is Chairman of the Global Identifier Legal Entity Identifier Foundation. He is also a Gerard Hartsink member of the World Trade Board, the Inter- national Chamber of Commerce Digital Econ- INTRODUCTION *Bank of England, omy Commission and the Dutch government’s The 2008 global financial crisis high- Threadneedle Street, Forum Standaardisatie. His previous roles lighted that financial parties often found London, EC2R 8AH, include Senior Executive Vice President of ABN it difficult to identify quickly the pre- UK cise legal entity of the counterparties in E-mail: victoria.cleland@ AMRO Bank, Chairman of CLS Bank Interna- bankofengland.co.uk tional and the European Payments Council and their financial transactions, particularly Board Member of SWIFT, LCH.Clearnet Group, for cross-border trades. The need for a **Global Legal Entity Euroclear Netherlands and the Euro Banking standardised identifier was recognised Identifier Foundation, St. Alban-Vorstadt 5, Association. as crucial to improving the quality and 4002 Basel, accuracy of financial data. To address this, Switzerland AbstrAct the G20 called on the Financial Stability E-mail: gerard.hartsink@ gleif.org In November 2011, the G20 initiated the Legal Board (FSB) to take the lead in develop- Entity Identifier (LEI) programme for the develop- ing a framework for a global Legal Entity Journal of Payments Strategy & ment of a global system to uniquely identify parties Identifier (LEI) system. At the G20 2012 Los Systems Vol. 13, No. 4 2020, pp. 322–336 engaged in financial transactions. Since then, over Cabos Summit,1 the G20 endorsed the FSB Henry Stewart Publications, 1750-1806 1.4 million legal entities in over 200 jurisdictions recommendations for the development of

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a global LEI system for parties to financial framework of identification of legal enti- transactions. ties. Its main tasks are oversight of GLEIF The LEI is a 20-character alphanum- (to ensure that GLEIF continues to meet eric code, designed to uniquely identify the GLEIF Statutes4 as determined by the any legally distinct entity that engages in FSB) and policy making for the global LEI financial transactions. Its aim is to provide system to ensure that policy is in the broad a globally consistent and unique code for public interest. each legal entity; separate to any domestic registration. LEI records include reference data, including the domestic business regis- How LEIs are issued and tracked ter number, and provide basic information Any legal entity can obtain an LEI for on the legal entity itself, such as its name and business or regulatory purposes for a regis- address (‘who is who’), and its ownership tration fee from a GLEIF-accredited LEI structure (‘who owns whom’) with respect issuer,5 also referred to as a local operating to direct and ultimate parent or children unit (LOU). LOUs are responsible for sup- entities. plying registration and renewal services to The structure and underlying elements firms. An LEI registrant can permit a third and features, which ensures that unique party (notary public, bank etc) to perform codes are issued to each entity, is defined an LEI registration on its behalf, only if the under the International Organisation for registrant has provided explicit permission Standardisation (ISO) standard 17442. The for such a registration to be performed. The standard was first defined in 2012 and then GLEIF website explains the registration revised in 2019. The structure of the LEI is process and a list of all accredited LOUs in designed to support automated processing the 14 G20 languages. (for example, the code includes two check LOUs are accredited by GLEIF for each digits). jurisdiction where they wish and are able to The global LEI system is designed to deliver services that meet the requirements benefit both public and private sector users. set out in GLEIF’s Master Agreement.6 It contributes to many financial stability For instance, although there are currently objectives such as improved risk manage- only two LOUs physically based in the ment in firms, better assessment of micro UK (Bloomberg and the London Stock and macroprudential risks and facilitation Exchange), registrants may choose the of orderly resolution, and enables higher- services of any of the 18 LOUs that are quality and more accurate financial data accredited to issue LEIs for UK entities. overall.2 To realise the G20 objectives, the The global LEI system is designed to FSB established two organisations: encourage competition between LOUs to minimise cost and prevent monopoly profi- ● The Global Legal Entity Identifier Foundation teering. Fees are paid by legal entities when (GLEIF) — a Swiss not-for-profit foun- registering initially and renewing their LEI dation,3 established in June 2014. GLEIF is registration annually, on a cost-recovery mandated to support the implementation basis. There has been a significant reduc- of the LEI programme on a nonprofit basis. tion in these fees since the early years of To realise its mandate, GLEIF cooperates operations, with prices having more than with LEI issuers as a partner. halved in many jurisdictions.7 ● The LEI Regulatory Oversight Committee LOUs must verify the reference data with (https://www.leiroc.org) — established the national registration authority8 of the in January 2013 to oversee the worldwide jurisdiction involved. The LEI registrants

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must notify their LOU of any changes in 1400000 the LEI reference data. The LOU has to 1200000 review and revalidate the reference data of 1000000 the registered legal entity at least once a year to ensure that LEI data are maintained to a 800000 high quality. 600000 GLEIF publishes reports on the quality 400000

of the data in an LEI Issuer Data Quality Number of LEIs issued 200000 Report and validates that the LOUs con- 0 tinue to meet all the requirements set out 2013 2014 2015 2016 2017 2018 in the Master Agreement.9 Figure 1: Global LEIs issued over time Source: GLEIF, Annual Reports, www.gleif.org Growth in LEI usage in financial market reporting Since the establishment of GLEIF in June Globally LEIs have been issued to 2014, over 1.4 million legal entities in over 1,469,605 legal entities. About 70 per cent 10 200 jurisdictions have registered for an of LEIs have been issued in FSB countries. LEI (see Figure 1). According to the FSB, Table 1 sets out the breakdown by FSB regulatory requirements have been the jurisdiction. main trigger for LEI issuances.11 For the Europe Union, this includes the Markets in Financial Instruments Directive and Regu- BENEFITS OF THE LEI lation (MiFID II and MiFIR) for reporting The LEI offers a unique opportunity to pro- of financial transactions and issuance of vide a consistent, concise, transparent and securities, and the European Market Infra- verified means to identify/cite any corporate structure Regulation on derivatives trade entity involved in any economic transaction. reporting. It provides a valuable tool for market partic- A substantial number of the 48,000 listed ipants to be able to realise benefits in a range companies that have registered for the LEI of areas. have done so both for the listed legal entity For end users, the benefits include the and many of their subsidiaries. In addition, following: some listed companies, such as Citigroup Inc (13 direct children and 686 ultimate chil- ● Improved risk management and liquidity man- dren), Nestle S.A (61 direct children and 95 agement: The LEI enables risk managers to ultimate children), Total SA (22 children have a consolidated overview of all the pos- and 119 ultimate children) and A.P. Moller- itions they hold with their counterparties Maersk AS (56 children and 56 ultimate and trading partners. This includes being children),12 have decided to obtain LEIs able to readily calculate the overall position because they see the value of the LEI pro- against a set of different but related entities gramme for the business processes of their within the same corporate group. subsidiaries in terms of the automatic deliv- ● Screening and onboarding of customers: LEIs ery of high-quality services (documentation) can make it easier to reliably identify to their customers or suppliers. Nevertheless customers across multiple systems and to date, the vast majority of companies that processes.13 LEIs are included in the have obtained LEIs have been prompted Wolfsberg Group’s Correspondent Bank- by their activities in financial markets, and ing Due Diligence Questionnaire. Anal- take-up for other uses has been low. ysis from McKinsey & Company and

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such as GS1 and the International Cham- Table 1: LEI issuance by FSB jurisdiction ber of Commerce, are very supportive of the LEI programme. Jurisdiction LEI issuance ● Identity management in online transactions: USA 209,590 – The LEI supports online business pro- UK 145,598 cesses by including the LEI in the certi- Germany 124,745 fication process of claims. The inclusion Italy 111,393 of the LEI in digital certificates, based Netherlands 104,269 on the ITU X509 standard, increases the Spain 103,342 legal certainty of computer-to-computer France 80,002 services. GLEIF is working with the Canada 32,381 CAB Forum to realise this benefit. – Digital trust processes can be supported India 28,458 by using the LEI in secure certificates Switzerland 17,471 to add an extra layer of verification for Australia 16,033 online business or for official docu- Japan 10,470 ments where the tamperproof signature Hong Kong 7,558 is added to the LEI of the issuer of the Singapore 6,384 document. China 6,227 ● Easier identification and movement around the Mexico 3,706 financial system: Turkey 2,136 – Where the LEI can be used to stream- Brazil 2,114 line bank processes and improve cus- Russian Federation 1,488 tomer experience, end users can have South Africa 1,455 access to better provision of credit and Korea 1,273 other financial services. – LEIs can support consumer protection Indonesia 723 by providing an additional/independent Argentina 666 means to check the legal name and status Saudi Arabia 463 of unknown payees, and identify poten- tial errors or cases of fraud; particularly FSB countries 1,017,945 where the payee is based in another Rest of the world 451,660 jurisdiction. Source: GLEIF, 26th August, 2019, www.gleif.org For policy makers, the benefits include the following:15 GLEIF suggests that banks adopting the ● Better assessment of micro and macro risks: The LEI could save at least 10 per cent of total LEI enables banks, businesses, central banks, operations costs for client onboarding and regulatory authorities and public policy- trading processes.14 makers to more easily link datasets that con- ● Onboarding of customers and suppliers in the tain business-level data, improving analysis supply chain: LEIs can help businesses to and enabling them to make more effective, mitigate their business risks and ensure informed decisions. For central banks, this compliance with sanctions regimes by can benefit all of the supervisory/oversight, enabling businesses to know exactly who monetary policy, financial stability and pay- their contract partners are, as well as their ment system policies, including real-time direct and ultimate parents. Corporate trea- gross settlement (RTGS) operator func- surers as well as other business organisations, tions. For example, the LEI is currently

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being introduced as a ‘grouping identifier’ data and shop around for financial services, in the ECB’s Centralised Securities Data- giving them greater choice and better access base (CSDB) to group securities under the to productive finance. Further, because same issuing entity. The CSDB supports the LEI is globally recognised, it will help analysis and policy work of a number of businesses access finance for cross-border central bank functions. trade. In turn, this could help to close the 18 ● Facilitation of orderly resolution: Having a £22bn funding gap for SMEs in the UK. unique identifier across entities, products and geographies supports a more com- prehensive and faster analysis of contagion POTENTIAL USES AND BENEFITS OF risks, and also a more timely analysis of the THE LEI IN PAYMENTS quality of the assets of the failed institution. Every payment system requires a messag- ● Improve quality and accuracy of financial data: ing standard, ie a common set of rules for The LEI can improve data quality and exchanging relevant payment information analysis as it can help support the manage- in order to enable efficient communication ment of large datasets and facilitate aggre- with participants and related infrastructures. gation and linking to different data sets. When included in payment messages, LEIs can provide clear and efficient identification Importantly, there are positive network of the parties in a transaction. externalities from adoption. If adoption of The world of payments is changing rap- LEIs increased among the non-financial idly. On the demand side, households, corporate sector, this could enable further companies and financial intermediaries are innovation, delivering wider economic demanding ever faster, simpler, cheaper benefits for the corporate end users of finan- and more flexible ways to pay and sup- cial services.16 A potential UK example port a more-digitised and online economy; of this is the concept of a ‘portable credit meanwhile on the supply side, major file’ to help small and medium enterprises changes are underway in many domestic (SMEs) to harness the power of their data and international payments systems. Most to give greater access to more diverse and major high-value payment system (HVPS) competitive financing options, including for operators have either moved or are in the global trade.17 process of moving to a common inter- By way of illustration, the Bank of national payment messaging standard, England’s response to the Huw van Steenis ISO 20022. First published in 2004 by Future of Finance review, noted that because ISO, ISO 20022 is a globally-agreed and of poor information, many SMEs struggle managed method for creating financial to access the finance they need. Survey evi- messaging standards. ISO 20022 is dence suggests that more than 50 per cent capable of carrying a much richer data set of SMEs consider only one provider when than many of the legacy formats that it seeking a loan and that six in ten of those replaces. who would like to borrow resort to per- LEIs can play an integral part in the new sonal funds rather than corporate finance. payment landscape. Names and addresses If adopted widely, the LEI could vastly often lack a single and consistent form or increase the value of data for companies by convention — particularly across different enabling the identification of their busi- jurisdictions with languages with different nesses and verification of their data. The LEI characters, thus hampering efficient pro- could be linked to a ‘portable credit file’ for cessing. Confusion can arise where entities SMEs into which businesses could pull their have similar names — both where the

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entities are related (within large corporate critical links/concentrations to accessing groups) and where they are not, such as the payment systems); US commercial bank, ‘Bank of England’ – support more effective policy decisions (LEI: 549300GY4NTTEM7WWB64) and by public authorities through better data the UK central bank, ‘The Governor and on economic activity (for example, the Company of the Bank of England’ (LEI: LEI could help identify trends of differ- YUEDD7W89PH0FV8Q2S28). Domestic ent industry sectors); organisational identifiers are less efficient – inform statistical research — central forms of identification for cross-border banks, such as the ECB, are already using payments as there is no arrangement the LEI data for research purposes. between the different issuing authorities to Currently, a variety of identifiers, ensure uniqueness, consistency of form or including name, addresses and various redundancy/error-checking between the domestic identifiers, are in non-standard authorities’ identifiers. formats, which makes system-wide anal- Figure 2 provides an illustrative example ysis difficult. comparing two scenarios where: ● Payment service providers are able to use the automated processing enabled by ● LEIs are not included in payment mes- LEIs to: sages; and – help to support efficient compliance and ● LEIs are included in payment messages fraud screening, onboarding and ‘know within designated fields in a structured for- your customer’ (KYC) checks, risk mat. The scenario also assumes that LEIs are reporting and payments processing — widely adopted, readily available and used this both reduces the need for man- as a unique legal identifier in the UK across ual processing, and speeds up average sectors. payment times by reducing the num- ber of false positives reported due to Use and benefits of LEI in payments uncertainty; Including LEIs in payments can bring poten- – facilitate anti-money laundering (AML) tial process and system uses and benefits, checks by helping to connect to shared some of which have been outlined previ- repositories of data — this can help to ously, for a range of market participants. For address the estimated £100bn+ that is example: laundered in the UK each year;19 – assist with continued provision of ● Payment system operators are better able to correspondent banking services by facil- assess macro and micro risks where they itating information-sharing in a stan- have access to richer aggregate data on the dardised format, reducing the risk and economic activity driving payments and on cost associated with due diligence pro- payment system usage patterns. This can: cesses.20 The majority of cross-border – enable better understanding of the risks payments involve correspondent banks to the payment system allowing better and typically take two to three days to decisions to be made based on a fuller settle. Such payments will be screened at identification of systemic risks; least three times (and sometimes many – protect and enhance financial stability more). The UK government’s Eco- and enable better understanding of the nomic Crime Plan for 2019–22 notes efficiency and effectiveness of financial that the LEI can help increase transpar- flows between economic actors (for ency around ownership structures across example, the LEI could help identify borders.21

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patterns. Benefit to participant fraud or error. and efficient way. the economic activity payments to individual payment system usage to due diligence records across multiple sources. Enables efficient access Enables reconciliation of invoices in an automated driving payments and on Access to richer data on

With LEIs the LEI receiver. information. LEI to payment reducing the potential for due diligence data. provided to support LEI of sending and payments message. receiving corporates Payment sender adds Enables assurance of LEI of payment sender own LEI and recipients correct recipient Solution offered by access other sources of LEI used as reference to transferred in ISO20022 reconciliation by payment Without LEIs suspicious activity. payment to legal entity. Problem without LEIs with further manual checks on payment to different recipient. Inconsistent use of identity data resource intensive due diligence, Payment service provider perform Payment sender creates payment with limited information on payment Challenging to perform data analysis. Difficulty for payment receiver to match included in fields and can vary quality. receiver. Can be defrauded into sending operator provider Impacted End users End users participant Payment system Payment service checks payment Stage beneficiary Processing investigatory Financial crime Initiate payment Funds credited to Figure 2: Potential benefts in using the LEI as a unique identifer when processing a domestic high-value wholesale payment 2: Potential benefts in using the LEI as a unique identifer when processing Figure

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Distinct databases, even within the from Asia-Pacific, Europe, the Middle East same organisation, can have different and Africa, and North America, responded identifiers for the same counterparty. to the CPMI recommendations and set out Where names (in character sets of dif- common market practice for the inclusion ferent languages) are used instead of of LEI in payment messages without chang- identifiers, minor variations can arise ing the structure of these messages for the across different databases throughout the optional usage of LEIs in payments. The payment process chain. According to a PMPG also stated that ‘Going forward, the report by McKinsey & Company and LEI can become a substitute for the address GLEIF, a bank’s database contained on f ield’. 26 average five slightly different names for The LEI was introduced as an optional the same organisation. This makes ver- field in ISO 20022 payment messages by ification across separate systems difficult PMPG in 2018. In May 2019, the FSB stated and requires manual intervention.22 that the upcoming completion of options to ● End users (such as importers and exporters) insert the LEI into payment messages may be can use LEIs to: an opportunity to propose an international – assist with faster and simpler reconcilia- timeline for the effective use of the LEI in tion and risk and liquidity management payment messages.27 processes; In response to the FSB recommendation, – facilitate the onboarding of suppliers and in September 2019, the PMPG announced ensure payments are made to the correct that it believes now is the appropriate time counterparty and to the correct legal for the payment industry to begin its adop- entity within a large corporate group. tion of the LEI. Coupled with the other changes happening around the LEI to make it cheaper and easier to obtain, the migration PAYMENT MESSAGING AND THE LEI to ISO 20022 provides the right opportunity Initial work on LEIs in payments23,24 for the industry to move to adding the LEI As early as 2016, the Bank for International into payments messages, infrastructures and Settlements (BIS) Committee on Pay- processes in a low-cost, efficient manner.28 ments and Market Infrastructures (CPMI) While not mandated globally, there is a acknowledged that the inclusion of LEI in growing industry view that LEIs should be payment messages can ensure unambigu- incorporated in payment messages in ISO ous identification of parties to payment 20022 in a coordinated way, but that the full transactions. The CPMI recommended rel- benefits can only be realised through wider evant stakeholders define a common market adoption and usage of LEIs, through a mix- practice for how to include the LEI in the ture of regulation and self-regulation.29 payment messages without changing the existing message structure. Additionally, as International proposals to part of the migration to the future global incorporate LEIs into major ISO messaging standard ISO 20022, relevant 20022 implementations30 stakeholders were encouraged to consider International working groups, including developing dedicated codes or data items for the High Value Payments Plus (HVPS+) the inclusion of the LEI in these payment and Cross-Border Payments and Reporting messages.25 Plus (CBPR+) have been set up by payment In 2017, the SWIFT Payments Market system operators to develop a harmonised Practice Group (PMPG), an independent international standard for implementation of body of payments subject matter experts ISO 20022:

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● HVPS+: This group is formed of high- of the Common Credit Message (CCM), value payment system operators (including which is central to message harmonisation the Bank of England, Federal Reserve and across the UK’s main interbank payment ECB) along with global banks and SWIFT. systems and compatible with the emerging The group has developed guidelines for the international consensus. Other payment sys- international implementation of ISO 20022 tems (BACS and Faster Payments) are also for HVPS which allow LEIs to be included committed to using this CCM. As part of on an optional basis in payment messages. its 2018 public consultation on ISO 20022 These guidelines will be adopted by many implementation, the Bank asked for views major global high-value payment systems, on including LEIs in payments messages in such as the CHAPS (sterling), Fedwire (US designated fields in the CCM. The major- dollar) and Target 2 (euro).31 ity of respondents supported making LEIs ● CBPR+: SWIFT has created this group, mandatory for transactions between finan- formed of international payments firms, cial institutions in CHAPS due to the to define usage guidelines for the consist- widespread benefits this can provide. In the ent use of ISO 20022 in cross-border pay- November 2018 consultation paper response, ments across the SWIFT network. These the Bank became the first central bank to market guidelines align with the HVPS+ announce its intention to start to mandate guidelines on all similar fields, ensuring LEIs into payment messages for transactions interoperability with domestic high-value between financial institutions, as part of the payment processing. These guidelines also migration to the CCM.33 allow LEIs to be included on an optional While many respondents supported basis in payment messages.32 extending mandatory LEI usage to a wider range of payments, the feedback suggested By 2025, as part of the migration to ISO that the full benefits of including LEI in all 20022, LEIs will be included on an optional sterling payment messages would only be basis in payment messages for cross-border realised with major increases in the uptake payments and by high-value payment of LEIs by UK businesses.34 The Bank systems for the US dollar, euro and sterling sees LEI usage as an important tool in a at a minimum. future data-driven economy as outlined in the Bank’s response to the Huw van Stee- UK plans to incorporate LEI into the nis Review on the Future of Finance and ISO 20022 Common Credit Message is minded to extend the mandatory use of The Bank of England (the Bank) provides LEIs to a wider range of transactions in sterling settlement services for payment sys- the future. The Bank recognises that more tems in the UK through the RTGS service. work needs to be done to provide the infra- An average of over £650bn is settled through structure to support such wider adoption the system each working day and the Bank and use of LEIs in payments. The Bank is is currently undertaking a multi-year pro- therefore working with key stakeholders in gramme to renew RTGS to enhance resilience the UK and internationally to address the and promote innovation. The Bank is also the challenges and seeks to support initiatives to operator of the CHAPS system, which is one improve the accessibility of LEIs, to ensure of the largest high-value payment systems the benefits can be achieved. The Bank has in the world, providing efficient, settlement committed to ‘champion the Legal Entity risk-free and irrevocable payments. Identifier (LEI) as a globally recognised and As CHAPS operator, the Bank will imple- unique identifier for all businesses in the ment ISO 20022 through the introduction UK, including integrating the LEI in the

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Bank’s new RTGS service and mandating from US$17 as of 2018). Fees charged its use in payment messages’.35 by LOUs for new LEI issuance range between US$55–US$220 and those for LEI renewals between US$35–125.41 BARRIERS TO THE ADOPTION OF – Approaching LOUs for the issuance and THE LEI IN PAYMENTS renewal of LEIs is a separate process that As outlined in the previous section, to entities need to remember to under- enable LEIs to be included in a wider range take as it is not currently linked to other of payments there needs to be wider LEI processes involving similar tasks, such usage among global businesses. As the FSB as obtaining domestic identifiers. This concluded in its 2019 thematic review, may be a particular barrier for SMEs. despite progress to date, the LEI still has ● Interoperability: far to go to meet the G20’s objective.36 The – LEIs will be used alongside other iden- FSB summarised that to capture the posi- tifiers and businesses need clear under- tive externalities and maximise the network standing of the mapping between these effects for the market, more efforts should identifiers. This can help with KYC and be made at national and international level AML processes. to promote LEI adoption and enhance the – The additional cost and time of benefits to authorities and market partici- migrating to a new identification system pants from its use. There needs to be wider while maintaining existing identifica- adoption of LEIs by SMEs (and their service tion systems. providers) and other legal entities — as also ● Data: Where LEI reference data are not acknowledged in the Wolfsberg Group Pay- updated or expired by entities, the reliabil- ment Transparency Standards.37 GLEIF and ity, usability and quality of LEI data will be industry experts estimate that for use of the compromised.42 LEI to achieve a critical mass, more than 40 ● Infrastructure: So far only a limited number million LEIs need to be issued38 globally to of domestic business registers have decided cover all exporters and importers, a more to become LOUs. If more domestic busi- than 20-fold increase on today’s uptake. ness registers became LOUs then the LEI There are a number of challenges to system infrastructure would benefit. achieving this ambition: ● Usage: – To date, LEIs are not well integrated ● Awareness: There is a lack of awareness of into business processes and systems. Use the LEI and of the benefits that the LEI can cases have been identified but need to be bring throughout the business cycle and worked through to address any potential supply chain, particularly outside financial barriers. institutions.39 This has to date limited the – Governments are at the early stages of voluntary uptake of LEIs. In April 2018, the engaging on the LEI and on understand- LEI ROC published a progress report with ing the benefits and operational efficien- a comprehensive overview of use cases and cies that widespread LEI adoption can stated that a few hundred million entities offer. LEIs have the potential to align with could be eligible for an LEI.40 national data strategy initiatives by facili- ● Accessibility: tating cross-linking and consolidation of – Acquiring and maintaining an LEI a diverse range of datasets, streamlining entails both fees and an administrative identification and data-quality checks burden. As of 2019, the flat portion of and improving the end-user experience fees going to GLEIF is US$11 (reduced by alleviating administrative burden.

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ACTIONS MARKET PARTICIPANTS ● interoperability — comprehensive mapping CAN TAKE TO REALISE THE of LEIs to other identifiers that are easy to POTENTIAL OF LEI TO IMPROVE access and use; PAYMENTS ● data — availability of and access to rich data Major payment system operators have on the LEI; harmonised plans to incorporate LEIs in ● usage — LEIs integrated in business and payment messages. There is an opportun- government systems and processes. ity to build on this so that LEIs become embedded in industry and government sys- The Bank of England and GLEIF believe a tems and processes as a key identifier and are critical juncture has been reached where real used innovatively to bring better services progress can be achieved through collabora- for end users. This environment will enable tion between the public and private sector at the use of LEIs for a wider range of payment both the national and international level to: transactions. The benefits can touch on each of the participants in payments, and beyond ● promote broader uptake of the LEI among to the real economy. To realise this vision businesses; and there needs to be: ● incorporate the LEI in a wider range of payment messages. ● widespread awareness of the LEI and its benefits; Table 2 summarises the actions payment ● infrastructure to facilitate LEI adoption and system operators, payment service provid- usage; ers, GLEIF, government and national data ● accessibility — efficient costs and processes authorities, industry standard setters, regula- for LEI adoption and maintenance; tors and end users could take to benefit fully

Table 2: Actions market participants can take to realise the benefits of the LEI

Actions Benefits Payment system operators • Incorporate LEIs into payment messaging standards. • Have better assessment of micro and macro risks. • Extend data fields captured and processed by system This can:

to include LEIs. { enable better understanding of the risks to the • HVPS operators can follow HVPS+ guidelines for payment system;

ISO 20022 implementation which allow for LEIs { protect and enhance financial stability;

to be included in payment messages. { support more effective policy decisions by • The European Payments Council has four Rulebooks public authorities;

and Implementation Guidelines based on the ISO { be used in statistical research data;

20022 standards. The LEI is being reviewed as an { support businesses and public administrations in option to be included in these rulebooks. the reconciliation of payments data. Payment service providers • Develop capability to add LEI to outgoing payment • Support efficient compliance and fraud screening, messages, and to process and pass on from incoming onboarding, KYC checks, risk reporting and messages. payments processing. • Incorporate LEI into compliance and fraud • Facilitate AML, combating the funding of screening. terrorism finance and sanctions checks. • Assist with the continued provision of correspondent banking services. (continued)

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Table 2: Actions market participants can take to realise the benefits of the LEI (continued)

Actions Benefits GLEIF • Enable cost and process efficiencies in • Help meet the G20 objectives for the LEI. LEI adoption and renewal to improve accessibility. • Deliver the global LEI system as a broad public • Enhance data quality and data maintenance good for the users of the public and private sector. processes of the LOUs with their registrants. • Enhance the scope and usability of the relationship data (such as beneficial owners). • Raise awareness of the benefits of the LEI to expand coverage in the non-financial sector.44 GLEIF is currently undertaking a research project to substantially increase the number of issued LEIs (from current 1.4 million to 40 million). • Improve interoperability of LEI with other identifiers. GLEIF has established a free-of-charge certification process for a mapping programme to ensure that organisations are able to map their own identifiers for their customers and/ or suppliers accurately with the LEI or with the owners of object identifier(s).At the end of June 2019, approximately 21,000 mapped identifier pairs were available for users.45, 46 Government and national data authorities • Provide infrastructure to promote LEI adoption, • Effective cross-linking and consolidation of awareness and use. This can include: a diverse range of datasets including business

{ incorporating LEIs into national business registers; registers. and • Helping to streamline identification and data

{ making national business registers an LEI quality checks. issuance authority, or developing processes • For end users, it could also improve the user to facilitate the generation of LEIs when experience and alleviate administrative burden of companies are incorporated.47 This action reporting requirements based on an ‘only once’ would greatly facilitate wider LEI adoption. principle.* • Lead by example and use LEIs for the issuing of public debt. Policy and industry standard setters and regulators • Consider whether LEI can be used (or enhance • Help meet the G20 objectives of the LEI and references to LEIs where already used) to achieve individual policy objectives. policy objectives. This could include guidance on the inclusion of data on entities as well as promoting LEI use in cross-border payments. • Consider requiring the LEI in reporting and disclosure frameworks. • For the oversight of financial market infrastructures consider the use of LEIs in Principle 22 of the Principles for Financial Market Infrastructures. • Work with industry to help realise usage cases for LEIs and address barriers and limitations. (continued)

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Table 2: Actions market participants can take to realise the benefits of the LEI (continued)

Actions Benefits End users • Have well-maintained LEIs for all active entities. • Improve risk and liquidity management. • Incorporate LEIs in business processes including • Ensure payments are made to the correct invoicing and accounting systems. counterparty. • Assist with screening and onboarding of customers and suppliers. • Assist with consumer protection. • Innovation can lead to easier identification and movement around the financial system. *The ‘only once’ principle is a concept to ensure that certain information only has to be reported to author- ities once and this is then shared across government departments. In the UK, this principle is used to notify of deaths, while in the EU, this principle is used in a single digital gateway.

from the potential of the LEI to transform all be carrying LEIs in their payment mes- payment processes. (The actions reflect the sages, as will cross-border payments across FSB’s recommendations where relevant to the SWIFT network. the payments industry as set out in the FSB’s 2019 Thematic Review on Implementation © Bank of England, 2020 of the LEI.43)

REFERENCES (1) G20 (2012) ‘Point 44 of the G20 Leaders CONCLUSION Declaration’, Los Cabos, Mexico, 19th June, available The incorporation of LEIs into payment at: http://www.g20.utoronto.ca/2012/2012-0619- loscabos.html (accessed 25th July 2019). messages could bring significant bene- (2) Financial Stability Board LEI, available at: https:// fits to the users and operators of domestic www.fsb.org/work-of-the-fsb/policy-development/ and international payment systems. This additional-policy-areas/legalentityidentifier/ paper sets out the actions required from (accessed 11th September, 2019). (3) Global Legal Entity Identifier Foundation (n.d.) operators, users and authorities to unlock ‘Governance Structure’, available at: https://www. these benefits. The Bank of England and gleif.org/en/about/governance (accessed 11th GLEIF are committed to working collab- September, 2019). (4) Global Legal Entity Identifier Foundation (n.d.) oratively with all market participants ‘Statues’, available at: https://www.gleif.org/ (national, international, public and pri- en/about/governance/statutes# (accessed 11th vate) to promote the actions required to September, 2019). (5) Global Legal Entity Identifier Foundation (n.d.) ‘Get realise the full potential of LEIs for the pay- an LEI: Find LEI Issuing Organizations’, available at: ments industry and beyond to the wider https://www.gleif.org/en/about-lei/get-an-lei-find- economy. lei-issuing-organizations (accessed 11th September, The HVPS+ and CBPR+ market practice 2019). (6) Global Legal Entity Identifier Foundation (n.d.) groups have developed concrete proposals ‘Accreditation of LEI Issuers’, available at: https:// for the inclusion in ISO 200022 payment www.gleif.org/en/about-lei/gleif-accreditation- messages of LEIs as identifiers of parties to a of-lei-issuers/required-documents (accessed 11th September, 2019). payment. By 2025, the high-value payment (7) Financial Stability Board (2019) ‘Thematic Review systems in the UK, US and euro area will on Implementation of the LEI’, available at: https://

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www.fsb.org/wp-content/uploads/P280519-2.pdf (24) Knorr, M. (2018), ‘The emerging influence of (accessed 11th September, 2019). legal entity identifiers in payments’, Journal of (8) Global Legal Entity Identifier Foundation (n.d.) Payment Strategy & Systems, Vol. 13, No. 1, ‘Registration Authorities List’, available at: https:// pp. 47–53. www.gleif.org/en/about-lei/code-lists/gleif- (25) Bank for International Settlements (2016) registration-authorities-list (accessed 11th September, ‘Committee on Payments and Market Infrastructures, 2019). With over 700 business registers and other Report on Correspondent banking’, available at: registers. https://www.bis.org/cpmi/publ/d147.pdf (accessed (9) Global Legal Entity Identifier Foundation (n.d.) 11th September, 2019). ‘About the data quality reports’, available at: https:// (26) Payments Market Practice Group (2017) ‘LEI in www.gleif.org/en/lei-data/gleif-data-quality- the Payments Market Discussion paper — Industry management/about-the-data-quality-reports update’, available at: https://www.swift.com/ (accessed 13th September, 2019). resource/lei-payments-market (accessed 11th (10) Global Legal Entity Identifier Foundation (n.d.) ‘LEI September, 2019). Statistics’, available at: https://www.gleif.org/en/ (27) Financial Stability Board, ref. 7 above. lei-data/global-lei-index/lei-statistics (accessed 11th (28) Payments Market Practice Group (2019) ‘Adoption September, 2019). of LEI in payment messages’, white paper, (11) Financial Stability Board, ref. 7 above. available at: https://www.swift.com/file/64706/ (12) Global Legal Entity Identifier (n.d.), available at: download?token=EFjdD7rt (accessed 23rd www.gleif.org (accessed 23rd October 2019). September 2019). (13) Basel Committee on Banking Supervision (2017) (29) Office of Financial Research (2017) ‘Collective ‘Guidelines Sound management of risks related actions: Toward solving the vexing problem to build to money laundering and financing of terrorism’, a global infrastructure for financial information’, available at: https://www.bis.org/bcbs/publ/d405. available at https://www.financialresearch.gov/ pdf (accessed 11th September, 2019). briefs/files/OFRbr_2017_01_LEI.pdf (accessed 23rd (14) McKinsey & Company and the Global Legal Entity September, 2019). Identifier Foundation (2017) ‘The LEI: The Value of (30) Bouille, I. and Haase, T. (2019), ‘Adoption of global the Unique Counterparty ID’, available at: https:// market practice for payments will pave the road to www.gleif.org/en/lei-solutions/mckinsey-company- a successful global migration to ISO 20022’ Journal and-gleif-creating-business-value-with-the-lei of Payment Strategy & Systems, Vol. 13, No. 2, pp. (accessed 11th September, 2019). 104–112. (15) Financial Stability Board, ref. 7 above. (31) SWIFT (2017) ‘High Value Payments Plus (16) Bank of England (2019) ‘Dave Ramsden’s Speech: (HVPS+) — the next stage step towards ISO Resilience and innovation in post-trade’, available at: 20022 Harmonisation’, available at: https:// https://www.bankofengland.co.uk/-/media/boe/ www.swift.com/news-events/news/high-value- files/speech/2019/resilience-and-innovation-in- payments-plus-hvps_the-next-stage-step-towards- post-trade-speech-by-dave-ramsden.pdf (accessed iso-20022-harmonisation (accessed 11th September, 11th September, 2019). 2019). (17) Bank of England (2019) ‘Response to the van (32) SWIFT (2019) ‘First ISO 20022 usage guidelines for Steenis review on the Future of Finance’, available cross-border payments released’, available at: https:// at: https://www.bankofengland.co.uk/-/media/ www.swift.com/news-events/news/first-iso-20022- boe/files/report/2019/response-to-the-future-of- usage-guidelines-for-cross-border-payments-released finance-report.pdf (accessed 11th September, 2019). (accessed 11th September, 2019). (18) Ibid. (33) Bank of England (2018) ‘ISO 20022 consultation (19) National Crime Agency (n.d.) ‘Money laundering response paper: a global standard to modernise UK and illicit finance’, available at: https://www. payments’, available at: https://www.bankofengland. nationalcrimeagency.gov.uk/what-we-do/crime- co.uk/-/media/boe/files/payments/rtgs-renewal- threats/money-laundering-and-terrorist-financing programme/iso-20022/iso-20022-consultation- (accessed 11 September 2019). response.pdf (accessed 11th September, 2019). (20) Financial Stability Board, ref. 7 above. (34) Ibid. (21) HM Government (2019) ‘Economic Crime Plan (35) Bank of England, ref. 17 above. 2019–22’, available at: https://assets.publishing. (36) Financial Stability Board, ref. 7 above: see Executive service.gov.uk/government/uploads/system/ Summary, p. 1. uploads/attachment_data/file/816215/2019- (37) Wolfsberg Group (2017) ‘Payment Transparency 22_Economic_Crime_Plan.pdf (accessed 11th Standards’, available at: https://www.wolfsberg- September, 2019). principles.com/sites/default/files/wb/pdfs/ (22) McKinsey & Company and GLEIF, ref. 14 above. wolfsberg-standards/1.%20Wolfsberg-Payment- (23) Metzger, J. and Paulowitz, T. (2018) ‘Seeking Transparency-Standards-October-2017.pdf (accessed common legal entity standards to facilitate cross- 11th September, 2019). border payments’, Journal of Payment Strategy & (38) The London School of Economics and Political Systems, Vol. 12, No. 4, pp. 365–370. Science (2019), Bank of England Capstone Project.

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(39) McKinsey & Company and GLEIF, ref. 14 above. (46) GLEIF (n.d.) ‘Download ISIN-to-LEI Relationship (40) LEI ROC (2018) Progress Report https://www. Files’, available at:https://www.gleif.org/en/lei-data/ leiroc.org/publications/gls/roc_20180502-1.pdf lei-mapping/download-isin-to-lei-relationship-files (accessed 11th September, 2019). (accessed 11th September, 2019). (41) Financial Stability Board, ref. 7 above. (47) Bank of England (2019) ‘Response to the (42) Ibid. Department for Business, Energy & Industrial (43) Ibid. Strategy Corporate Transparency and Register (44) Ibid. Reform’, available at: https://www.bankofengland. (45) GLEIF (n.d.) ‘Download BIC-to-LEI Relationship co.uk/-/media/boe/files/research/boe-response- Files’, available at: https://www.gleif.org/en/lei- to-beis-on-corporate-transparency-and-register- data/lei-mapping/download-bic-to-lei-relationship- reform-consultation.pdf (accessed 11th September, files (accessed 11th September, 2019). 2019).

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