The LEI Handbook, Exchange Data's Guide to Financial Codes, written by economist and Harvard trained Ozren Cvjetic, has recently been published. bobsguide sat down with the author to discuss the major themes covered in the book.
Does your academic background provide you with unique insights into the world of financial regulation, as opposed to a player within the industry?
I have had few years of hands-on post-trading and central banking consulting experience after my economics studies. I am also a member of Legal Entity Identifier (LEI) G20 sponsored Private Sector Preparatory Group of international experts. As a researcher, I could look into the industry issues with a more objective perspective.
In an increasingly globalized world, with many firms with feet in many markets how can you keep on top of them (regulated) and avoid a repeat of 2008?
The LEI mechanism that is being implemented globally is actually the answer to the problems that led to the Great Recession of 2008. Unique identification of all financial transactions between legal entities around the world will provide regulators as well as financial and non-financial legal entities (firms) to be able to constantly and continuously monitor their exposures and associated risks.
How much self-regulation actually happens on back office activity?
This depends on the market. Different jurisdictions have different regulatory requirements in regards to self-regulation and disclosures.
How much effective cooperation goes on between international regulatory bodies?
I believe that there are a lot of co-operations between regulators. In addition, the international organizations play a significant role to provide the platform for international cooperation inside the regulators’ community.
How far away are we from realising a single global infrastructure for identification?
Up to this moment only about 20 percent of all registered legal entities around the world have obtained their LEIs, i.e. they became part of Global Legal Entity Identifier(GLEIF) system. It is hard to predict how long it will take to have all legal entities as a part of GLEIF system. The most important factor is for “big players” to fully become part of GLEIF since these big financial and non-financial institutions process a vast majority of financial transactions and generate majority of international activities across different jurisdictions.
How do you reconcile sociolinguistic cross-border differences when establishing a universal standard language of data?
LEI is actually addressing this issue. For instance, a large financial multinational corporation can have hundreds of different subsidiaries across different markets. In this case the same, let’s say US headquartered corporation, when it registers its subsidiary in Russia, it will be registered with a name in Cyrillic. The structure of the LEI code addresses this issue since it ensures an absolutely unique identification of each and every legal entity. Furthermore, it allows for functionality of aggregation of the risk exposure across the entire legal entity with multiple subsidiaries.
How realistic is the G20’s aspiration of the LEI system in regulating the financial world?
G20 is seriously investing its resources in making LEI as an effective system. Since G20 consists of finance ministries, central bank governors and securities exchange commissions of the 20 most powerful and influential countries in the world along with the IMF and the World Bank as members, I am very optimistic that LEI will be implemented in a meaningful way and in the near future.
Does the LEI need further development to become a more effective and comprehensive tool for regulators?
The LEI code as a tool is fully designed, but now the battle is in implementing it globally and in meaningful way and rather sooner than later. The recent implementation of the legal entity parent information functionality is great step in the implementation of LEI. It clarifies who owns who, and maps out the ownership hierarchies inside the corporations with multiple subsidiaries and legal entities, providing extremely useful risk monitoring and risk management tool.
Talking of regulation, where do you see MiFID II taking us in the future? How effective will it be?
MiFID II is designed to harmonize trading and post-trading requirements across Europe. MiFID II will most likely fix major issues from MiFID I, the issue of competitive advantage of firms that could operate with lesser regulatory burden than firms under the MiFID regulatory framework.
MiFID II will certainly be a big improvement of MiFID I and will help E.U. based companies involved in trading and post-trading activities to become even more competitive.