DTCC Connection

Oct 16, 2014 • DTCC Connection

DTCC Urges FinCEN To Adopt Use of Legal Entity Identifiers in Reporting

by Joseph King

Larry Thompson, DTCC Managing Director and General Counsel
Larry Thompson, DTCC Managing Director and General Counsel

The Depository Trust & Clearing Corporation (DTCC) filed a comment letter with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) in response to FinCEN’s proposed rulemaking regarding customer due diligence (CDD) requirements for financial institutions.

Specifically, DTCC encouraged FinCEN to incorporate the use of the Legal Entity Identifier (LEI) in its certification form regarding beneficial owners of legal entity customers.

DTCC has been actively engaged in the global effort to create an LEI solution, which would allow for the unique identification of legally distinct entities to financial transactions and serve as a valuable building block to increasing transparency and risk mitigation in the financial markets.

In the comment letter, Larry Thompson, DTCC General Counsel, highlighted the benefits of adopting a global LEI system (GLEIS).

“Following the 2008 financial crisis, the importance and benefit of a universal LEI became clear,” Thompson explained. “The inability of regulators to quickly and consistently identify parties to transactions across markets, products and regions hindered their ability to evaluate systemic risk, identify trends and emerging risks, and take appropriate corrective steps.”

Thompson encouraged FinCEN to join in global regulatory efforts to ensure that LEIs become the global standard for identifying legal entities by incorporating the use of the LEI in their certification form.

GLEIS Background

The GLEIS seeks to enable systemic risk monitoring and management by regulators, including the Financial Stability Oversight Council (FSOC) and its member agencies, and to increase the effectiveness of counterparty risk management by financial institutions. In 2012, the Financial Stability Board (FSB) and the Group of 20 (G-20) endorsed the structure for a GLEIS, including the creation of a top-level regulatory oversight body—the Regulatory Oversight Committee (ROC)—which is tasked with overseeing the system and assuming leadership of the LEI initiative.

Thompson noted that the GLEIS has garnered widespread regulatory support and stated that, “the FSB, the ROC, and individual regulators have recommended that a single LEI be assigned to every legal entity that engages in financial transactions.”

Key U.S. officials have testified before Congress on the progress of the LEI system and highlighted the importance of requiring the use of LEIs in reporting. In addition, in April 2014, the Securities Industry and Financial Markets Association (SIFMA) submitted a letter to Treasury Secretary Jack Lew, who also serves as FSOC Chairman. In the letter, SIFMA encouraged Secretary Lew, in his role at FSOC, “[t]o advocate for a more fulsome adoption and use by the US regulatory community of the Legal Entity Identifier (LEI).”

To date, more than 300,000 LEIs have been issued by 18 ROC-endorsed pre-Local Operating Units (LOUs), which provide the primary interface for entities that register for an LEI. In the United States, the ROC-endorsed Global Markets Entity Identifier (GMEI) utility—offered by DTCC in collaboration with SWIFT—operates as a pre-LOU within the GLEIS. Currently, more than 150,000 LEIs across approximately 170 countries have been issued since the GMEI utility went live in August 2012.

Further reading:
DTCC’s Legal Entity Identifier Service Turns Two
Global Markets Entity Identifier 

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