The LEI as Counterparty Digital Fingerprint

Ever wish you could check your counterparty for ID at the door? A Legal Entity Identifier (LEI) could be a lot like that.

Each LEI would be part of a worldwide information system for helping capital markets firms track their counterparties and manage their risk, as I mentioned in May. But what goes on the ID? Who can see it? And whom do we trust to make a useful ID card?

Two global international regulatory bodies addressed these issues in a report issued last week. The Bank for International Settlements-hosted Committee on Payment and Settlement Systems (CPSS) and Madrid-based International Organization of Securities Commissions (IOSCO) called for specific standards.

“Transaction data should include the primary economics of the trade such as price, quantity and duration, counterparty information, operational data and event data,” according to Securities Technology Monitor, a medium covering operations and technology in the capital markets. CPSS and IOSCO would also like to pin down how authorities and others get access to specific information, as well as who gets to generate and distribute LEIs.

The end goal is to make the LEI a data fingerprint, unique to each legal entity flashing an out-of-state ID at your door. And it is decipherable to anyone reading it, be it a government regulator or your firm’s own bouncer.