8 June A Global Legal Entity Identifier for Financial Markets

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1 8 June 2012 A Glbal Legal Entity Identifier fr Financial Markets

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3 Abbreviatins Table f Cntents Executive summary... 1 Intrductin... 1 Key cnsideratins and challenges t vercme... 2 Prpsals and recmmendatins... 3 Implementatin and next steps...6 Annex 1: Glbal LEI system diagram... 8 Annex 2: Recmmendatins fr the develpment and implementatin f the glbal LEI system... 9 Annex 3: Glbal LEI System High Level Principles Annex 4: Initial elements fr inclusin in a Charter fr the glbal LEI Regulatry Oversight Cmmittee (ROC) A Glbal Legal Entity Identifier fr Financial Markets I. Intrductin II. Objectives f the glbal LEI system III. Key cnsideratins and challenges t vercme in building a glbal LEI system IV. Principles underpinning the framewrk and design f the glbal LEI system V. Scpe, scale and initial ambitins VI. Pulling the LEI system tgether VII. Gvernance and the rules f the game VIII. Implementatin and next steps Annex 5: LEI Implementatin Grup wrk plan diagram Annex 6: Glbal LEI system Charter develpment diagram Annex 7: LEI Central Operating Unit develpment prcess diagram i

4 Abbreviatins BOD Bard f Directrs COU Central Operating Unit IFI Internatinal Financial Institutin LEI Legal Entity Identifier LOU Lcal Operating Unit ROC Regulatry Oversight Cmmittee SIFI Systemically Imprtant Financial Institutin

5 Executive summary This reprt sets ut recmmendatins and prpsals t implement a glbal Legal Entity Identifier (LEI) system that will uniquely identify parties t financial transactins. The reprt is prvided t the Ls Cabs Summit, t meet the mandate prvided by the G-20 t the FSB at the Cannes Summit. Intrductin There is widespread agreement amng the public authrities and financial industry participants n the merits f establishing a unifrm glbal system fr legal entity identificatin. Such a system wuld prvide a valuable building blck t cntribute t and facilitate many financial stability bjectives, including: imprved risk management in firms; better assessment f micr and macrprudential risks; facilitatin f rderly reslutin; cntaining market abuse and curbing financial fraud; and enabling higher quality and accuracy f financial data verall. It wuld reduce peratinal risks within firms by mitigating the need fr tailred systems t recncile the identificatin f entities and t supprt aggregatin f risk psitins and financial data, which impse substantial deadweight csts acrss the ecnmy. It wuld als facilitate straight thrugh prcessing. But despite numerus past attempts, the financial industry has nt been successful in establishing a cmmn glbal entity identifier. The finance sectr cnsequently lags well behind many ther industries in agreeing and intrducing a cnsistent glbal framewrk fr entity identificatin. The financial crisis has prvided a renewed spur t the develpment f a glbal LEI system. Internatinal regulatrs have recgnised the imprtance f the LEI as a key cmpnent f necessary imprvements in financial data systems. 1 T prvide additinal impetus, the FSB was given a mandate by the G-20 t lead the c-rdinatin f internatinal regulatry wrk and t deliver cncrete recmmendatins n the LEI system by June 2012: We supprt the creatin f a glbal legal entity identifier (LEI) which uniquely identifies parties t financial transactins. We call n the FSB t take the lead in helping crdinate wrk amng the regulatry cmmunity t prepare recmmendatins fr the apprpriate gvernance framewrk, representing the public interest, fr such a glbal LEI by ur next Summit. (Cannes Summit Declaratin) T take the wrk frward, the FSB set up a time-limited Expert Grup f key stakehlders with the fllwing mandate: T deliver clear recmmendatins with respect t the implementatin f a glbal LEI system t the FSB Plenary fr endrsement. Specific recmmendatins shuld be presented fr the fllwing package: Gvernance framewrk fr a glbal LEI Operatinal mdel Scpe f LEI reference data, access and cnfidentiality Funding mdel Implementatin and phasing 1 Cmmittee n Payment and Settlement Systems and Technical Cmmittee f the Internatinal Organizatin f Securities Cmmissins, Reprt n OTC derivatives data reprting and aggregatin requirement, final reprt, January

6 The value f strng c-peratin between private sectr stakehlders and the glbal regulatry cmmunity in develping an LEI system is widely accepted. The Expert Grup benefited frm extensive input frm an Industry Advisry Panel and discussins at a wrkshp in Basel in March. The FSB is very grateful fr the supprt. The FSB Plenary has reviewed and apprved the recmmendatins f the Expert Grup. 2 This Reprt prvides the recmmendatins f the FSB t the G20 Summit fr the develpment and implementatin f the glbal LEI system. Key cnsideratins and challenges t vercme Given that a unique LEI system fr financial markets ffers manifld benefits, an bvius questin is why such a system is nt already in place? The principal reasn is that the benefits f the system are cllective and accrue t users and the brader public as a grup. There are insufficiently strng incentives in private markets t vercme tw surces f market failure. The first is a prblem f cllective actin and c-rdinatin, reflecting the challenges f gaining agreement that a particular identificatin scheme ffers the best apprach. The secnd reflects the prblem f launching a netwrk. The benefits frm the system increase as mre and mre parties acquire an LEI. At the launch, hwever, as with ther examples f netwrk gds such as the telephne, the private incentives fr ptential early mvers t acquire an LEI are lw. T date it has prved impssible t get ver this initial hurdle relying purely n vluntary adptin and market incentives. These market failures supprt the view that the LEI is by nature a public gd, ffering cllective benefits that are hard t capture by private market incentives alne. In practice, public interventin, fr example, that mandates the use f the LEI fr reprting f expsures r psitins may be needed t break dwn such barriers and take the initiative frward. Remving such barriers prvides an pprtunity fr a c-rdinated apprach between the public and private sectr in delivering a glbal LEI system. That is why the recent CPSS- IOSCO Reprt n data reprting and aggregatin requirements emphasised that: as a universally available system fr uniquely identifying legal entities in multiple financial data applicatins, LEIs wuld cnstitute a glbal public gd. There are many areas where public and private sectr interests in the glbal LEI system are fully aligned (such as unique identificatin f entities, high quality reference data, integrity f systems, etc). But since the LEI system is by nature a public gd, there is a need t make sure that the gains fr the brader public are captured and that prvisin f the LEI is nt explited in ways that d nt benefit the public. Fr example, if regulatrs mandate use f the LEI system, then bth LEI registrants and users have n alternative but t use it. Absent any chice, the market is captive. There are cnsequently incentives fr suppliers f the LEI t explit their privileged psitin and hence risks that suppliers face incentives t vercharge registrants, restrict access, cut crners n data quality, r t use a psitin f privileged access t LEI infrmatin t supply ther revenue-generating services n nn-cmpetitive terms. These arguments prvide the mtivatin fr the mandate prvided t the FSB t prduce recmmendatins fr a gvernance framewrk fr the LEI that identifies and prvides strng 2 Membership f the Expert Grup cmprised representatives frm bth FSB members and key nn-members frm the glbal regulatry cmmunity with a majr stake in the initiative such as the CFTC and ESMA. The Grup greatly benefited frm the active input and advice f a private sectr Industry Advisry Panel f 34 experts frm acrss the glbe as well as frm participants in a public/private sectr wrkshp in Basel in March. 2

7 prtectin f the public interest, while encuraging cmpetitive market frces and mitigating mnply threats. T fster cnfidence in the quality f the LEI and sundness f the LEI system, it is imprtant that there is a unique identifier fr each entity that registers, and that there are reliable, while flexible, peratinal principles and standards applied t the riginatin and maintenance f an LEI. Such principles and standards will facilitate the cnsistent integratin int a glbal system f entities frm jurisdictins with different regulatry, legal systems and lcal language character sets. It is imprtant t reflect and take int accunt such characteristics if all such jurisdictins are t feel cmfrtable in jining the system ver time. Mrever, in rder t generate the maximum netwrk benefits frm brad cverage, it is imprtant that the system has the capacity t expand quickly t include new jurisdictins and new registrants acrss the glbe. Clear prcesses and prtcls shuld be in place t facilitate the integratin f registrars and registrants frm new members int the system. It is als crucial that the glbal system is flexible and adaptable t take accunt f changes in financial markets and new ptential uses. It must als prvide apprpriate prtectin f data cvered by cnfidentiality and privacy restrictins gverning sme ptentially imprtant reference data in sme cuntries, particularly regarding infrmatin n crprate relatinships and wnership structures. Develping and implementing a glbal LEI system will require active supprt and invlvement frm bth the glbal regulatry cmmunity and frm the private sectr, including ptential LEI registrants (bth frm the financial and nn-financial sectrs), standard setters, data and system suppliers, academics and cnsultants. T ensure glbal acceptance and the lng-term future f the LEI system, the public sectr must put in place a gvernance framewrk with a number f key bjectives: t supprt the delivery f a public gd; t ensure that public interests in the system are prtected; t prmte cmmn standards; and t facilitate widespread glbal adptin. Such a framewrk will prvide a transparent, pen and fair system, that prtects against the risk f abuse f dminant market psitins, and that facilitates quick adptin. Under this brad gvernance framewrk, it is imprtant t prvide cmpetitive market incentives fr the private sectr t develp and implement effective peratinal and technical slutins: t draw n expertise and specialism in lcal jurisdictins and glbally in the develpment and peratin f registratin, identificatin and infrmatin systems; t establish cllabratin methds t learn frm the successful develpment f similar identificatin systems in ther industries; t gain frm the benefits f cmpetitin while facilitating c-perative slutins where apprpriate; and t prmte standardisatin f appraches acrss the glbe that benefit internatinal financial markets, glbal financial integratin and ecnmic grwth. The prpsals and recmmendatins in the reprt cnsequently set ut a framewrk that attempts t capture in a practical manner the benefits f bth public sectr and private sectr invlvement in taking frward the glbal LEI initiative, while attempting t bridge different views n the apprpriate bundary between public and private sectr respnsibilities. Prpsals and recmmendatins The FSB strngly supprts the develpment and implementatin f a glbal LEI system. The reprt sets ut 35 Recmmendatins fr the Develpment and Implementatin f the Glbal LEI System (Annex 2) t advance the practical implementatin f such a system. 3

8 These recmmendatins are guided by a set f Glbal LEI System High Level Principles that set ut the bjectives that the design f a glbal LEI system must meet (Annex 3). The brad aim f the prpsals is t put in place a strng glbal gvernance framewrk t prtect the public interest, while prmting an pen, flexible, and adaptable peratinal mdel fr the glbal LEI system. T be successful, the glbal LEI system shuld supprt the needs and interests f bth the regulatry cmmunity and the private sectr, and encurage widespread adptin and take up acrss the glbe in a phased manner. Widespread (and ultimately glbal) adptin will maximise the benefits f the glbal system. T supprt this bjective, the FSB recmmends that the glbal system shuld supprt a high degree f federatin and extensive reliance n lcal implementatin under agreed and cmmnly applied glbal standards. In particular, the glbal LEI system shuld be designed, perated and gverned in a manner that ensures unique entity identificatin and cnsistency at the glbal level, while drawing n distributed lcal elements and lcal infrastructures where pssible. Drawing n such lcal arrangements prvides additinal flexibility t deliver a high level f lcal validatin f reference data fr the legal entities registering fr an LEI, as well as meeting lcal jurisdictinal requirements. The FSB recmmends a three-tier structure fr the glbal LEI system t meet the brad bjectives (see attached Chart in Annex 1): Regulatry Oversight Cmmittee (ROC). The ROC will have the ultimate respnsibility fr the gvernance f the glbal LEI system. It wuld cmprise authrities which supprt the cre principles and purpses f the system (as set ut in the High Level Principles) and that are cmmitted t supprt the gvernance in the public interest. The FSB recmmends that the gvernance principles and bligatins are set ut in a glbal LEI Regulatry Oversight Cmmittee Charter that shuld be drawn up by the autumn. Endrsement f the Charter by the FSB r G-20 wuld establish the ROC. Membership f the ROC will be pen t all authrities wishing t participate in the glbal LEI system and that are cmmitted t the bjectives and cmmitments highlighted in the Charter. An Executive Cmmittee wuld be appinted by the Plenary t steer the wrk under guidelines t be set ut in the Charter. Central Operating Unit (COU). The Central Operating Unit is the pivtal peratinal arm f the glbal LEI system and has respnsibility fr delivering high quality peratins. In particular, the COU has respnsibility fr ensuring the applicatin f unifrm glbal peratinal standards and prtcls that deliver: glbal uniqueness f the LEI; seamless, pen access t the glbal LEI and t high quality reference data fr users (with the depth f access cntrlled by apprpriate access rights 3 ); as well as prtcls and methds fr hw lcal systems can cnnect t the COU, including the necessary supprt f the lcal systems. The COU will be a legal entity in the frm f a nt fr prfit fundatin 4 that will rely n brad industry 3 4 The COU will supprt the maintenance f a lgically centralised database f identifiers and crrespnding reference data as with the Internet, the database will appear t users t be frm a single seamless system, but again as with the Internet, the data will be physically stred n different systems acrss the glbe. Technlgy will deliver the lgical centralisatin. Or bdy f equivalent legal frm. 4

9 participatin, expertise and knwledge t identify and develp the mst technlgically, financially and legally sund methds t implement the glbal LEI system in line with the standards and framewrk defined by the ROC. A Bard f Directrs (BOD) will direct the peratins f the COU. The Bard may include bth industry representatives and independent participants. The COU s BOD, in cnsultatin with the ROC, will prvide recmmendatins n whether t utsurce any particular functin r peratin f the glbal LEI system r whether t develp a particular slutin in-huse. Thse recmmendatins shuld be cnsistent with the High Level Principles f the glbal LEI system and reflect the public gd nature f the system. Lcal Operating Units (LOU). Lcal Operating Units will prvide the primary interface fr entities wishing t register fr an LEI. They will be the lcal implementers f the glbal system. LOUs will ffer facilities such as lcal registratin, validatin, and maintenance f reference data; prtectin f infrmatin that must be stred lcally; and will facilitate the use f lcal languages and rganisatin types. LOUs culd build n lcal business registry r numbering services t maximise the utilisatin f lcal infrastructures. In sme jurisdictins, there may be multiple LOUs t encurage cmpetitin, in thers there may be ne which culd reside r be perated in the private r public sectr, in yet thers there may be n LOU and entities wishing t acquire an LEI will need t apply acrss brders r t the COU until the lcal infrastructure is established. In the latter case, if an LOU is subsequently created, it will be imprtant t ensure that the LEI is prtable (transferable) t the lcal jurisdictin. An imprtant bjective in the system design is t ensure that the glbal LEI system has a selfsustaining funding mdel. The mdel must ensure that the system is based n nn-prfit cst recvery 5 and that there are n mnply rents accruing t service prviders. The prpsed steady state funding system 6 has tw cmpnents: a lcal discretinary charge; and a cmmn fee fr supprt f central functins f the COU and ROC. The cst f btaining an LEI shuld be mdest and nt a barrier t acquisitin. Access t the LEI and assciated reference data will be free and pen t all users, and there shuld be n bundling f ther services alngside the LEI by prviders which frces users t pay directly r indirectly fr the LEI. The FSB encurages widespread adptin f LEIs and cnsequently supprts that the eligibility f legal entities t apply fr an LEI shuld be bradly defined, in rder t ensure that all relevant entities can apply nw and in the future as financial markets evlve and adapt. Uniqueness must be guaranteed, hwever, and s nly ne LEI may be assigned t any financial market cunterparty. The initial reference data available at the launch f the LEI will enable the unique identificatin f the eligible legal entity. The subject reference elements are utlined in the recently issued standard ISO 17442:2012, Financial Services Legal Entity Identifier (LEI) 7. The FSB endrses the recmmendatin f the Expert Grup that, as specified in ISO Albeit with prvisins t ensure efficiency and avid any gld-plating f csts. Start up funding is cvered belw. The standard was published by the Internatinal Organisatin fr Standardisatin n 30 May

10 17442:2012, the fficial name f the legal entity, the address f the headquarters f the legal entity, the address f legal frmatin, the date f the first LEI assignment, the date f last update f the LEI, the date f expiry 8, business registry infrmatin (if applicable), alngside a 20 digit alphanumeric cde 9 shuld frm the basis fr the system at the launch f the glbal LEI initiative. The FSB cncluded that it is very imprtant that the system is adaptable and expandable and that new reference data can be added int the glbal system. In particular, the FSB recmmends the rapid develpment f the standards fr LEI reference data n wnership and crprate hierarchies, as these data are essential t achieve ne f the key bjectives f risk aggregatin fr the glbal LEI system. The FSB cnsequently recmmends that wrk is taken frward urgently t develp prpsals and, if necessary, glbal standards fr additinal reference data n the direct and ultimate parents f legal entities t address the current peratinal cnstraints that prevent timely and effective data aggregatin. The next step in this wrk will need t address the challenge that sme jurisdictins may nt, at least immediately, be able t share such infrmatin due t cnfidentiality and privacy restrictins. That will als affect where such data can be stred in the glbal LEI system (lcally r centrally). Ideally, legal and technical arrangements can be put in place t enable sharing f cnfidential infrmatin amng the glbal regulatry cmmunity, althugh this warrants additinal scrutiny. Implementatin and next steps The FSB strngly supprts rapid implementatin f the glbal LEI system. Early delivery f the system wuld advance multiple G-20 financial market initiatives and prvide manifld benefits t the glbal regulatry cmmunity as well as t the private sectr. The FSB recmmends adptin f an implementatin plan with the gal f establishing an independent, pen, fair and transparent glbal LEI system by the end f 2012 with the system independently functinal by March Achieving this ambitius bjective will require high level plitical supprt and strng engagement and c-peratin with a wide range f private sectr stakehlders n the develpment f the COU. That in turn will build n the successful interactin ver the past fur mnths between the FSB LEI Expert Grup and the private sectr, thrugh the LEI Industry Advisry Panel and the wrkshp. Subject t the G-20 supprting further wrk t launch the glbal LEI, and entrusting preparatry wrk t the FSB, the FSB recmmends establishing an LEI Implementatin Grup with a time and task-limited mandate t launch the glbal LEI system n a self standing basis by n later than March The Implementatin Grup (IG) wuld build n and replace the current Expert Grup and wuld cmprise interested and willing experts (legal, IT and ther) frm the glbal regulatry cmmunity. T reflect the glbal nature f the LEI initiative, the grup wuld be led by 8 9 Fr entities with a date f expiry, the reasn fr the expiry shuld be recrded, and, if applicable, the LEI f the entity r entities that acquired the expired entity. The technical cde f the LEI shuld be a 20 digit alphanumeric number as set ut in the ISO standard 17442:2012. The cde shuld nt incrprate any intentinal embedded intelligence (such as a cuntry reference) which wuld lead t the cde becming ut f date. 6

11 representatives frm different gegraphical regins. There are tw principal strands f wrk 10 (as shwn in Chart 1 verleaf): Legal and plicy wrk t develp the prpsed Charter fr the ROC tgether with the necessary dcuments gverning the creatin and peratin f the ROC and the COU. Technlgy wrk with the private sectr t establish the COU. The initial bjective f the legal wrkstream will be t develp the Charter fr the ROC (see Annex 4: Initial Elements fr Inclusin in a Charter fr the Glbal Regulatry Oversight Cmmittee) as well as ther key legal dcuments such as the bylaws f the ROC and the legal framewrk fr the establishment f a glbal LEI fundatin charged with develping and perating the COU. The G-20 may either assign the FSB the task f preparing and endrsing the Charter, r culd decide t undertake the final endrsement itself at the Finance Ministers and Central Bank Gvernrs meeting in Nvember. Endrsement f the Charter will establish the ROC 11. A small secretariat may be recruited t supprt the ROC as determined by the ROC. Internatinal financial institutins wuld be apprached t see if they wuld be prepared t supprt the establishment f the ROC. Once in place, the ROC will be able t endrse and establish the COU, including appinting the first BOD accrding t criteria develped by the Implementatin Grup. An early task is t analyse and develp practical methds fr seed-crn funding fr develpment f the glbal system (the preferred ptin is t apprach charitable fundatins that are interested in the area abut funding a glbal LEI fundatin which will frm the COU 12 ther ptins, which culd be cmplementary, include lans frm IFIs r frm the private sectr). In parallel, the technlgy stream will undertake preparatry wrk with a wide range f private industry representatives interested in jining a glbal industry LEI fundatin cnsultative grup 13 t develp a central platfrm that will facilitate the integratin f a lcal identificatin schemes (whether currently existing r emerging) int a lgically centralised database f unique LEIs based n cnsistent standards, prtcls, prcedures etc that appears seamless t users. This wrk will be taken ver by the glbal LEI fundatin r bdy f equivalent legal frm under the directin f its BOD, nce the ROC is in place t frmally establish the fundatin/cou and appint the Bard 14. Once in place, the Bard will then have respnsibility under the guidance f the ROC fr finalising the develpment and implementatin f the necessary systems, including decisins n whether t build r buy particular cmpnents and services (including the ptin f cmplete cntracting ut). The attached reprt sets ut the recmmendatins and implementatin plan Taking frward the develpment f recmmendatins fr additinal reference data t reflect wnership will frm a third strand. The Charter will spell ut the timeline and prcess t frm the ROC as an peratinal Cmmittee (eg membership, nminatin f Chairman, secretariat, etc). Preliminary discussins indicate interest n the part f such fundatins and ther nn-gvernmental rganizatins. An pen invitatin and slicitatin f interest wuld be made by the Implementatin Grup via a public annuncement upn endrsement f the Reprt by the G-20. Once the ROC has established the COU and appinted the Bard, the COU will als have respnsibility fr the peratinal integratin f any existing pre-lei slutins perated by ptential LOUs (eg the CFTC CICI slutin - which is expected t be launched in mid 2012). 7

12 Annex 1: Glbal LEI system diagram 8

13 Annex 2: Recmmendatins fr the develpment and implementatin f the glbal LEI system The fllwing 35 recmmendatins are prpsed by the FSB in rder t develp and implement the glbal LEI system. They als include steps t be addressed by the recmmended FSB LEI Implementatin Grup in the implementatin phase f the glbal LEI initiative. Recmmendatin 1 SETTING UP A GLOBAL LEI SYSTEM The FSB strngly supprts the develpment and implementatin f a glbal LEI system that uniquely identifies participants t financial transactins. Recmmendatin 2 GLOBAL REGULATORY COMMUNITY REQUIREMENTS The LEI system shuld meet the requirements f the glbal regulatry cmmunity (including supranatinal rganisatins). The ptential benefits f the LEI include: t supprt authrities in fulfilling their mandates t assess systemic risk and maintain financial stability; cnduct market surveillance and enfrcement; supervise market participants; cnduct reslutin activities; prepare high quality financial data and undertake ther regulatry functins. Recmmendatin 3 GLOBAL LEI SYSTEM GOVERNING DOCUMENTS Glbal LEI system High Level Principles set ut the principles and cmmitments that specify and define the gvernance and structure f the glbal LEI system. A glbal LEI Regulatry Oversight Cmmittee Charter shuld specify the missin, rle and respnsibilities f the Cmmittee as well as the prcess fr its establishment. Supprt fr the High Level Principles agreement and Charter will indicate a desire t participate in the glbal LEI system. Recmmendatin 4 SUPPORT OF FINANCIAL MARKET PARTICIPANTS The LEI system shuld be designed in a manner that prvides benefits t financial market participants. Recmmendatin 5 SYSTEM FLEXIBILITY Flexibility must be built int the glbal LEI system t prvide the capability fr the system t expand, evlve and adapt t accmmdate innvatins in financial markets. It must als allw the seamless intrductin f new participants. T these ends, critical sftware and ther relevant elements must be defined and made publicly available withut any licensing, intellectual prperty r similar restrictins under pen surce principles. The LEI shuld be prtable 15 within the glbal LEI system. 15 In this cntext a prtable LEI means that the cde culd be transferred frm ne LOU t anther LOU. This may be necessary, fr example, in case f the LEI being btained riginally frm a freign LOU befre a lcal LOU was established r if an entity changed its legal address r headquarters, etc. 9

14 Recmmendatin 6 COMPETITION AND ANTI-TRUST CONSIDERATIONS The LEI system shuld be designed t ensure that it is nt lcked-in with a particular service prvider fr any key system functins r prcesses, and that the principles f cmpetitin are ensured n bth glbal and lcal levels where apprpriate. The gvernance framewrk shuld prvide safeguards t ensure that cmpetitin principles and anti-trust cnsideratins are upheld. The lcal implementatin f the glbal LEI system shuld meet lcal anti-trust requirements. Recmmendatin 7 FEDERATED NATURE OF THE LEI SYSTEM The glbal LEI system shuld supprt a high degree f federatin and lcal implementatin under agreed and implemented cmmn standards. Recmmendatin 8 SCOPE OF COVERAGE Eligibility f legal entities t apply fr an LEI shuld be bradly defined, in rder t identify the legal entities relevant t any financial transactin. N mre than ne LEI shall be assigned t any legal entity. Recmmendatin 9 LEI REFERENCE DATA AT SYSTEM LAUNCH The fficial name f the legal entity, the address f the headquarters f the legal entity, the address f legal frmatin, the date f the first LEI assignment, the date f last update f the LEI, the date f expiry, business registry infrmatin (if applicable), alngside a 20 digit alphanumeric cde shuld frm the basis fr the glbal system at the launch f the glbal LEI initiative. Fr entities with a date f expiry, the reasn fr the expiry shuld be recrded, and, if applicable, the LEI f the entity r entities that acquired the expired entity. Recmmendatin 10 REVIEW OF SCOPE OF COVERAGE AND REFERENCE DATA The Regulatry Oversight Cmmittee shuld undertake regular reviews f the scpe and extent f cverage f the LEI t reflect emerging regulatry and market requirements fr the LEI use accrding t an agreed schedule. The Regulatry Oversight Cmmittee shuld undertake regular reviews f the LEI reference data accrding t a set schedule t mnitr the required changes, additins, retirements and mdificatins. Recmmendatin 11 STANDARDS FOR THE LEI SYSTEM The LEI system shuld meet, t the degree pssible, evlving requirements f bth the regulatry cmmunity and industry participants in terms f infrmatin cntent, scpe, timeliness and availability. The Regulatry Oversight Cmmittee is respnsible fr the final determinatin fr any standards fr the LEI t be utilised in the glbal LEI system. When prpsing areas fr the develpment f new standards, the Regulatry Oversight Cmmittee shuld strngly cnsider utilising existing standard setting rganizatins t develp such standards, prvided that such rganizatins 10

15 incrprate the requirements fr the standards as determined and cmmunicated by the Regulatry Oversight Cmmittee. Recmmendatin 12 LEI REFERENCE DATA ON OWNERSHIP The FSB LEI Implementatin Grup shuld as sn as pssible develp prpsals fr additinal reference data n the direct and ultimate parent(s) f legal entities and relatinship r wnership data mre generally and t prepare recmmendatins by the end f The grup shuld wrk clsely with private sectr experts in develping the prpsals. Recmmendatin 13 LEI OPERATIONAL AND HISTORICAL DATA The LEI system shuld maintain high quality recrds that retain relevant infrmatin n amendments (query, add, mdify r delete f any data element) t data items as well as additinal data t facilitate the surveillance and cntrl f the system by the COU where apprpriate. Recmmendatin 14 CENTRAL OPERATING UNIT The missin and rle f the Central Operating Unit shuld be t ensure the applicatin f unifrm glbal peratinal standards and prtcls that deliver glbal uniqueness f the LEI, seamless access t the glbal LEI and t high quality reference data fr users with depth f access cntrlled by apprpriate access rights, as well as prtcls and methds fr hw lcal systems can cnnect t the Central Operating Unit. Recmmendatin 15 FORMATION OF THE CENTRAL OPERATING UNIT The LEI Implementatin Grup shuld develp a detailed plan fr the frmatin f the Central Operating Unit via the establishment f a nt-fr-prfit LEI fundatin 16 by interested industry participants under the versight f the frmed LEI Regulatry Oversight Cmmittee. The fundatin wuld rely n industry participants, their expertise and knwledge t identify and develp the mst technlgically, financially and legally sund methds t implement the glbal LEI system in line with the standards and framewrk defined by the Regulatry Oversight Cmmittee. Representatives frm all gegraphic areas and industry sectrs wuld be invited t participate in the preparatry wrk underpinning the frmatin f the LEI fundatin as the Central Operating Unit in a manner defined by the Implementatin Grup. Recmmendatin 16 BALANCED REPRESENTATION IN THE CENTRAL OPERATING UNIT The Regulatry Oversight Cmmittee and LEI Implementatin Grup shuld ensure that the glbal LEI fundatin takes accunt f the interests f financial and nn-financial industry participants frm different gegraphic areas and ecnmic sectrs. 16 Or bdy f equivalent legal frm. 11

16 Recmmendatin 17 LOCAL OPERATING UNITS The LEI system shuld allw the lcal prvisin f all LEI functins which the Regulatry Oversight Cmmittee determines d nt need t be centralised. The LEI system shuld enable the use f lcal languages, rganisatin types and relatinship structures as required. Prcedures t integrate lcal systems int the glbal LEI system shuld be develped by the LEI Implementatin Grup in cnsultatin with lcal jurisdictins and ptential Lcal Operating Units (when available) in a way and manner that meets the glbal LEI system High Level Principles. The Central Operating Unit f the LEI system shuld be able t prvide supprt t Lcal Operating Unit peratins when necessary accrding t criteria and requirements established by the Regulatry Oversight Cmmittee and administered by the Central Operating Unit. Recmmendatin 18 LEI DATA VALIDATION The LEI system shuld prmte the prvisin f accurate LEI reference data at the lcal level frm LEI registrants. Respnsibility fr the accuracy f reference data shuld rest with the LEI registrant, but Lcal Operating Units have respnsibility t exercise due diligence in guarding against errrs, as cnsistent with Regulatry Oversight Cmmittee standards, and t encurage necessary updating. The Central Operating Unit has respnsibility t check registratins fr glbal uniqueness and t crdinate recnciliatin by Lcal Operating Units where necessary. Accuracy shuld be ensured at the lcal level by the registered entities. Self-registratin shuld be encuraged as a best practice fr the glbal LEI system. Recmmendatin 19 LEI ISSUANCE WHEN NO LOCAL REGISTRAR AVAILABLE Whenever pssible the LEI registratin shuld take place with the relevant Lcal Operating Unit. When a Lcal Operating Unit is nt available, the Regulatry Oversight Cmmittee and a lcal jurisdictin (when willing t engage) shuld agree n appraches fr lcal entities t btain LEIs. The Implementatin Grup shuld develp prpsals fr such mechanisms via: (1) establishing a mechanism f btaining LEIs thrugh ther Lcal Operating Units; (2) establishing a mechanism f btaining LEIs frm a registratin facility in the Central Operating Unit; and (3) any ther mechanisms that are apprpriate. Recmmendatin 20 SUSTAINABLE FUNDING The steady state funding f the glbal LEI system shuld be self-sustainable and reliable. The funding system shuld be based n an efficient nn-prfit cst-recvery mdel. The system shuld have tw cmpnents: a lcal discretinary charge; and a cmmn fee based n the number f registratins in each LOU t pay fr the centralised peratins in the Central Operating Unit, alngside any csts f implementing and sustaining the gvernance framewrk. Fees shuld be sufficiently mdest nt t act as a barrier t acquiring an LEI. 12

17 Recmmendatin 21 GLOBAL REGULATORY OVERSIGHT COMMITTEE CHARTER The gvernance framewrk f the glbal LEI system shuld be develped at the internatinal level in an pen and transparent manner that supprts cllective gvernance f the glbal system. A glbal LEI Regulatry Oversight Cmmittee Charter shuld set ut the frmatin and peratins f the Regulatry Oversight Cmmittee. The glbal LEI Regulatry Oversight Cmmittee Charter shuld be prepared by the FSB LEI Implementatin Grup fr endrsement by the G- 20 at the Finance Ministers and Central Bank Gvernrs meeting in Nvember 2012 r by the FSB Plenary in Octber. Recmmendatin 22 REGULATORY OVERSIGHT COMMITTEE A Regulatry Oversight Cmmittee, as specified in the Charter, shuld have the respnsibility f uphlding the gvernance principles and versight f the glbal LEI system functining t serve the public interest. The Regulatry Oversight Cmmittee shuld be a bdy representing regulatrs and ther gvernment r supranatinal entities engaged in regulating r mnitring the financial system r markets. Membership and decisin making prcesses wuld be established by the Charter. Wherever pssible, decisins wuld be reached by cnsensus. Recmmendatin 23 POWER AND AUTHORITY OF THE REGULATORY OVERSIGHT COMMITTEE The Regulatry Oversight Cmmittee has the ultimate pwer and authrity ver the glbal LEI system. Any pwer delegated t the Central Operating Unit, Lcal Operating Units and ther entities can be reversed by the Regulatry Oversight Cmmittee 17. The Regulatry Oversight Cmmittee shuld establish a frmal versight plan t ensure that its directives t the Central Operating Unit r ther parts f the system are enfrced and that the gvernance principles are upheld. Recmmendatin 24 PARTICIPATION IN THE REGULATORY OVERSIGHT COMMITTEE T participate in the LEI Regulatry Oversight Cmmittee, an authrity shuld indicate supprt fr the glbal LEI High Level Principles and Charter fr the Regulatry Oversight Cmmittee. Authrities may elect t be a full member f the Regulatry Oversight Cmmittee r an bserver. The rights and respnsibilities f members and bserver status participants shuld be defined in the Charter. 17 Lcal authrities may als reserve rights t be engaged in decisins n lcal registratin peratins t the extent that they act in accrdance with the High-Level Principles f the LEI system. 13

18 Recmmendatin 25 LEVERAGING INFRASTRUCTURE OF AN INTERNATIONAL FINANCIAL ORGANISATION In develping prpsals t establish the Regulatry Oversight Cmmittee fllwing agreement n the Charter, the Implementatin Grup shuld if pssible and, subject t agreement, leverage n the existing infrastructure f an internatinal financial rganisatin t initiate and stand-up the glbal LEI gvernance structure in a timely manner, utilising the experience f the internatinal rganisatin in executing internatinal initiatives. Recmmendatin 26 GOVERNING DOCUMENTS FOR THE CENTRAL OPERATING UNIT Alngside the develpment f the glbal Charter, the Implementatin Grup shuld develp legal dcuments gverning the mandate prvided by the Regulatry Oversight Cmmittee t the Central Operating Unit as well as ther legal dcuments needed t specify the full gvernance framewrk fr the glbal LEI system. Recmmendatin 27 BOARD OF DIRECTORS OF THE CENTRAL OPERATING UNIT The Central Operating Unit shall have a Bard f Directrs. The Regulatry Oversight Cmmittee has the right t vet membership f the BOD, as well as t remve members. The ROC has the right t appint independent members 18. Recmmendatin 28 FORMATION OF THE INITIAL BOARD OF DIRECTORS OF THE CENTRAL OPERATING UNIT The Central Operating Unit s initial Bard f Directrs shuld be appinted by the Regulatry Oversight Cmmittee, taking int accunt the need fr gegraphic and sectral diversity. The Implementatin Grup shuld develp the fitness criteria, size, rle etc fr the BOD that shuld be reviewed in tw years by the Regulatry Oversight Cmmittee. Recmmendatin 29 POWERS AND FUNCTIONS OF THE BOD OF THE CENTRAL OPERATING UNIT The Bard f Directrs f the Central Operating Unit shuld be granted pwers t direct the management and peratins f the Central Operating Unit in line with the verall standards set by the Regulatry Oversight Cmmittee. Recmmendatin 30 CONTINGENCY ARRANGEMENTS The Regulatry Oversight Cmmittee is respnsible fr setting and verseeing the applicatin f business cntinuity standards fr the glbal LEI system in line with best practices fr key financial infrastructure. Rules and prcedures shuld be defined that the Central Operating Unit and Lcal Operating Units must fllw in case f 18 In this cntext independent members mean nn-industry representatives. 14

19 inslvency, bankruptcy, etc in rder t ensure cntinuity f the glbal LEI system. A prtcl shuld als be develped fr maintenance f secure parallel cpies f the LEI, in a manner that respects lcal laws. Recmmendatin 31 LEI INTELLECTUAL PROPERTY The LEI Implementatin Grup shuld cnduct analysis and prvide recmmendatins n the treatment f the LEI intellectual prperty (such as the LEI cde, sftware, reference data, any ther LEI data, peratinal prtcls, etc) accrding t the principles f pen access and the nature f the LEI system as a public gd. The bjective f this analysis shall be t ensure a regime that assures the availability in the public dmain, withut limit n use r redistributin, f LEI data, reference data, and prcesses. Any intellectual prperty rights shuld be held by, r licensed t the glbal LEI fundatin unless defined therwise by the Regulatry Oversight Cmmittee. Cpyright shuld be used t the extent pssible t prmte the free flw r cmbinatin f infrmatin frm disparate surces. Recmmendatin 32 FSB LEI IMPLEMENTATION GROUP Subject t the G-20 supprting further wrk t launch the glbal LEI, and entrusting implementatin planning t the FSB, an FSB LEI Implementatin Grup (IG) shuld be established with a clear mandate t launch the glbal LEI system n a self- standing basis. The LEI Implementatin Grup shuld cease t exist upn frmatin f the Regulatry Oversight Cmmittee which shuld be by 31 March 2013 at the latest. Recmmendatin 33 STRUCTURE OF THE FSB LEI IMPLEMENTATION GROUP A time-limited FSB LEI Implementatin Grup f interested and willing experts (legal, IT, and ther) frm the glbal regulatry cmmunity that includes interested parties frm the FSB LEI Expert Grup shuld be frmed t take the glbal LEI initiative frward int the glbal implementatin phase until the Regulatry Oversight Cmmittee is established. The IG shuld be led by representatives frm different gegraphic areas t reflect the glbal nature f the LEI initiative and will be supprted by the FSB Secretariat. The IG shuld develp prpsals fr the glbal LEI system stand-up as defined in the mandate belw fr review and endrsement by the FSB Plenary in Octber 2012 and, as apprpriate, final review and endrsement by G- 20 Finance Ministers and Central Bank Gvernrs in Nvember Recmmendatin 34 RESPONSIBILITIES OF THE FSB LEI IMPLEMENTATION GROUP The mandate f the FSB LEI Implementatin Grup shuld be t prepare a draft glbal LEI Regulatry Oversight Cmmittee Charter, prpsals fr the establishment f the LEI Regulatry Oversight Cmmittee and related structures, develp all necessary legal dcuments fr Regulatry Oversight Cmmittee peratins, develp necessary intellectual prperty agreements and cntracts, cnduct research and prvide recmmendatins n LEI related infrmatin sharing arrangements; set up the prcess and any necessary legal dcumentatin necessary fr establishment f the Central Operating Unit and its Bard f Directrs; and set 15

20 up the prcess fr establishment f the necessary standards, prtcls, rules and prcedures and rganizatinal design fr the Central Operating Unit. Recmmendatin 35 ESTABLISHMENT OF THE GLOBAL LEI SYSTEM The glbal LEI system will be established by the endrsement f the high level Charter fr the Regulatry Oversight Cmmittee by the G-20 Finance Ministers and Gvernrs in Nvember r by the FSB Plenary in Octber. 16

21 Annex 3: Glbal LEI System High Level Principles The glbal LEI system High Level Principles have been prepared t guide the develpment f the glbal LEI system, in line with the G-20 mandate f develping a gvernance framewrk that represents the public interest. The recmmendatins fr the develpment and implementatin f the glbal LEI system in Annex 2 draw n the High Level Principles. 1. The Glbal LEI system shuld uniquely identify participants t financial transactins. 2. The LEI system shuld meet the requirements f the glbal regulatry cmmunity fr accurate, cnsistent and unique entity identificatin. 3. The LEI system shuld be designed in a manner that prvides benefits t financial market participants. 4. Flexibility must be built int the glbal LEI system t prvide the capability fr the system t expand, evlve, and adapt t accmmdate innvatins in financial markets. 5. The LEI system shuld nt be lcked-in with a particular service prvider fr any key system functins r prcesses. The principles f cmpetitin shuld be ensured n bth glbal and lcal levels where apprpriate. 6. The glbal LEI system shuld supprt a high degree f federatin and lcal implementatin under agreed and implemented cmmn standards. 7. The LEI system shuld meet evlving requirements f bth the regulatry cmmunity and industry participants in terms f infrmatin cntent, scpe f cverage, timeliness and availability. 8. The LEI Regulatry Oversight Cmmittee shuld have the respnsibility f uphlding the gvernance principles and versight f the glbal LEI system functining t serve the public interest. The Cmmittee has the ultimate pwer and authrity ver the glbal LEI system. 9. The missin, rle and respnsibilities f the ROC shall be specified by the glbal LEI Regulatry Oversight Cmmittee Charter, which shall establish the Cmmittee. 10. Participatin in the glbal LEI Regulatry Oversight Cmmittee shall be pen t all authrities subscribing t the High Level Principles and t the bjectives and cmmitments in the Charter. 11. The LEI Central Operating Unit shuld have the missin and rle t ensure the applicatin f unifrm glbal peratinal standards and prtcls set by the ROC and act as the peratinal arm f the glbal LEI system. It shall be established as a fundatin r legal equivalent. 12. The LEI Central Operating Unit shuld have a balanced representatin f industry participants frm different gegraphic areas and sectrs f ecnmy. Its Bard f Directrs shuld be selected frm industry representatives, plus independent participants. 17

22 13. The LEI system shuld allw the lcal prvisin by Lcal Operating Units f all LEI functins which the ROC determines are nt required t be centralised. 14. The LEI system shuld prmte the prvisin f accurate LEI reference data at the lcal level frm LEI registrants and ensure glbal uniqueness f the registrants. 15. Any glbal universal intellectual prperty rights shuld belng t the glbal LEI system. 18

23 Annex 4: Initial elements fr inclusin in a Charter fr the glbal LEI Regulatry Oversight Cmmittee (ROC) The initial elements fr inclusin in a Charter fr the glbal LEI Regulatry Oversight Cmmittee (ROC) utlines a number f high level elements that culd be cnsidered fr incrpratin in the develpment f the prpsed Charter. Missin f the ROC T gvern the glbal LEI system in the public interest in accrdance with the glbal LEI system High Level Principles. T take any actin deemed necessary t prtect the public interest in respect f the glbal LEI system. Objectives f the Charter T prvide high level agreement n the gvernance framewrk fr the glbal LEI system. T establish the ROC as the regulatry gvernance bdy fr the glbal LEI system. T specify the mandate and bjectives f the ROC. T prvide the ROC with authrity and pwer t take any actin necessary t prtect the public interest in respect f the glbal LEI system. Cmmitments and Obligatins Authrities abiding by the Charter agree t: Membership Uphld the agreed, glbal, gvernance principles t prtect the public interest in relatin t the glbal LEI system. Participate in the wrk f the Regulatry Oversight Cmmittee. Supprt the intrductin f the glbal LEI fr regulatry purpses. Participatin in the ROC shall be pen t all regulatry authrities, jurisdictins and supranatinal authrities that agree t the High Level Principles fr the glbal LEI system and that are willing t subscribe t the cmmitments specified in this Charter. Mandate and Respnsibilities f the Regulatry Oversight Cmmittee The ROC shall have respnsibility fr uphlding the gvernance principles and versight f the glbal LEI system functining t serve the public interest. The ROC shall have respnsibility fr prtectin f the public interest: t prtect the public gd f the glbal LEI system and t mitigate any ptential fr the explitatin f privilege and market pwer. Specific bjectives include: Assuring pen and free access t publicly available data. 19

24 Data shuld be nn-prprietary, with n bundling f services 19, r restrictins n access r redistributin; All public data shuld be readily available n a cntinuus basis, free f charge; Cnfidential data must be suitably prtected; Data and perating prcesses shuld nt be subject t any type f Intellectual Prperty restrictins; Assuring pen access t the acquisitin f an LEI. Entities required t, r wishing t, btain an LEI shuld be able t acquire ne under pen, and nndiscriminatry terms: Fees, where and when impsed, shuld be mdest and set n a nnprfit cst-recvery basis 20. The peratinal mdel must be efficient and avid excessive csts. Budgeting framewrks shuld be clear and cnsistent. N restrictins shuld be placed n the use f the LEI by the registrant. N cmpetitive advantage shuld apply t any entity invlved in the LEI system. Ensuring that the LEI system meets public sectr requirements, including: Ensuring uniqueness, accuracy, reliability, prtability and persistence f the LEI cde and reference data. Prpsing new standards fr the LEI system that serve the public interest and reflect market changes. Mdifying existing standards as required. Prmting the use and scpe f the LEI t expand the cllective benefit frm widespread adptin. Utilising lcal language and character sets, as well as ensuring access t the whle system in a cmmn language. The ROC shall have the ultimate respnsibility fr develping standards and general plicies and verseeing the functining f the glbal LEI system in the public interest irrespective f whether thse functins are delegated r nt. This shuld include the fllwing: Plans, plicies, and strategy fr the glbal LEI system Standards fr LEI reference data Apprval f budgets f the Central Operating Unit Apprval f material cntracts t avid vendr dependence The LEI shuld be freely and penly available and shuld nt be tied (r bundled ) t the prvisin f ther services. It is pssible that sme jurisdictins culd be willing t fund the LEI issuance frm public surces and prvide LEIs t its lcal entities free f charge. 20

25 Functins and Pwers Business cntinuity standards Audit f the system fr financial cntrl, best business practices, data quality standards, etc. Recgnitin and terminatin f Lcal Operating Units and registratin agencies 21. The ROC has the ultimate pwer and authrity ver the glbal LEI system. Any pwer delegated t the Central Operating Unit, Lcal Operating Units and ther entities can be reversed by the ROC. The ROC has respnsibility fr establishing the glbal LEI fundatin r bdy f equivalent legal frm as a legal frm that will perate the Central Operating Unit as well as the criteria fr participatin in the fundatin. The ROC shall appint the initial Bard f Directrs f the Central Operating Unit and has the pwer t vet r remve Directrs thereafter. The ROC has the pwer t appint independent Directrs t the Bard f the COU. The ROC shuld establish a frmal versight plan t ensure that its directives t the COU r t ther parts f the glbal LEI system are enfrced and that the gvernance principles are upheld. The ROC has the right and shuld have the ability t audit the parties engaged in the glbal LEI system and appint independent auditrs. The ROC shuld have the ability t adjudicate disputes. Structure f the ROC The ROC shuld be cmpsed f the ROC Plenary and ROC Executive Cmmittee. Plenary: All participating authrities shall be members f the Plenary. The Plenary is the ultimate decisin making bdy f the ROC. Executive Cmmittee: An Executive Cmmittee shall be selected frm amng the Plenary membership t direct the functining f the ROC. Membership shall be balanced jurisdictinally and reginally and als in terms f expertise and functins (eg prudential regulatrs, market regulatrs, central banks, etc). Criteria t be determined. Respnsibilities f the Executive Cmmittee t be determined. Chair: A chair f the ROC shall be appinted. Rle, terms, appintment prcedure, etc t be determined. Observer status: Authrities may participate as bservers in the ROC. Rle f bservers and criteria fr participatin t be determined. 21 Lcal authrities may als reserve rights t be engaged in decisins n lcal registratin peratins t the extent that they act in accrdance with the High Level Principles f the LEI system. 21

26 Decisin making Decisins shall be made by cnsensus, wherever pssible. Vting arrangements t be decided in cases where cnsensus is nt pssible. Sub-Cmmittees and Advisry Panels The ROC will create Sub-Cmmittees t undertake key functins as it judges necessary. The mandate and respnsibilities f any such Sub-Cmmittees shall be decided by the ROC. The ROC may als appint public r private sectr Advisry Panels as it judges necessary. Secretariat and Administratin Establishment A ROC Secretariat shuld be frmed t supprt ROC activities as required. Size, rle, and lcatin f any central secretarial functin fr the ROC t be determined. The cst f any central gvernance functin shall be prvided frm centrally cllected registratin fees. The ROC shall be established upn endrsement f this Charter by the G-20/ FSB. The Charter will spell ut the timeline and prcess t frm the ROC as an peratinal Cmmittee (eg membership, nminatin f Chairman, secretariat, etc). 22

27 A Glbal Legal Entity Identifier fr Financial Markets 23

28 I. Intrductin Intrducing a single glbal system fr uniquely identifying parties t financial transactins wuld ffer many benefits. There is widespread agreement amng the glbal regulatry cmmunity and financial industry participants n the merits f establishing such a legal entity identifier (LEI) system. The system wuld prvide a valuable building blck t cntribute t and facilitate many financial stability bjectives, including: imprved risk management in firms; better assessment f micr and macrprudential risks; facilitatin f rderly reslutin; cntaining market abuse and curbing financial fraud; and enabling higher quality and accuracy f financial data verall. But despite numerus past attempts, the financial industry has nt been successful in establishing a cmmn glbal entity identifier and lags well behind many ther industries in agreeing and intrducing a cmmn glbal apprach t entity identificatin. The financial crisis has prvided a renewed spur t the develpment f a glbal LEI system. Internatinal regulatrs have recgnised the imprtance f the LEI as a key cmpnent f necessary imprvements in financial data systems 22. The value f strng c-peratin between private sectr stakehlders and the glbal regulatry cmmunity is widely accepted. T prvide additinal impetus, the FSB was given a mandate by the G-20 t lead the crdinatin f internatinal regulatry wrk and t deliver cncrete recmmendatins n the LEI system by June 2012: We supprt the creatin f a glbal legal entity identifier (LEI) which uniquely identifies parties t financial transactins. We call n the FSB t take the lead in helping crdinate wrk amng the regulatry cmmunity t prepare recmmendatins fr the apprpriate gvernance framewrk, representing the public interest, fr such a glbal LEI by ur next Summit. (Cannes Summit Declaratin) T take the wrk frward, the FSB set up a time-limited Expert Grup f key stakehlders with the fllwing mandate: T deliver clear recmmendatins with respect t the implementatin f a glbal LEI system t the FSB Plenary fr endrsement. Specific recmmendatins shuld be presented fr the fllwing package: Gvernance framewrk fr a glbal LEI; Operatinal mdel; Scpe f LEI reference data, access and cnfidentiality; Funding mdel; Implementatin and phasing. 22 Cmmittee n Payment and Settlement Systems and Technical Cmmittee f the Internatinal Organizatin f Securities Cmmissins, Reprt n OTC derivatives data reprting and aggregatin requirement, final reprt, January

29 The FSB Plenary has reviewed and apprved the recmmendatins f the Expert Grup 23. This Reprt prvides the recmmendatins f the FSB t the G20 Summit fr the develpment and implementatin f the glbal LEI system. It has eight sectins. Sectin II utlines the bjectives f the glbal LEI system and the ptential benefits and uses. Challenges t vercme in develping and implementing a glbal system are addressed in Sectin III. The subsequent sectin sets ut principles underpinning the framewrk and design f the glbal LEI system. Sectin V utlines the ptential cverage f the LEI and the reference data assciated with it. Sectin VI describes the peratinal framewrk fr the glbal LEI system, highlighting the key peratins and functins. The fllwing sectin utlines the specific regulatry bjectives required t prtect the public interest and sets ut prpsals fr a glbal gvernance framewrk t deliver them. Sectin VIII prvides cncrete recmmendatins n the launch f the glbal LEI system, including setting ut the way frward and next steps. II. Objectives f the glbal LEI system The current prblem The lack f a cmmn, accurate and sufficiently cmprehensive identificatin system fr parties t financial transactins raises many prblems. Fr example, as utlined in the recent reprt by CPSS-IOSCO n OTC derivatives data reprting and aggregatin requirements 24, a single firm may be identified by different names r cdes which an autmated system may interpret as references t different firms. Thus in the example utlined, the firm J.P.Mrgan may be identified as Mrgan, JP Mrgan, J.P.Mrgan, JPM, r J.P. Mrgan which an autmated system may ascribe t different entities, thus rendering data aggregatin and validatin very difficult. Individual firms may reslve this by spending large amunts f mney n data cleaning and n develping bespke IT and data management systems t enable internal recnciliatin and data aggregatin. Such systems are cstly and cannt be recnciled acrss firms. Deadweight csts acrss the ecnmy frm such an apprach are high. Objectives f the glbal LEI system The ultimate aim is t put in place a system that culd deliver unique identifiers t all legal entities participating in financial markets acrss the glbe. Each entity wuld be registered and assigned a unique cde that wuld be assciated with a set f reference data (e.g. basic elements such as name and address, r mre cmplex data such as crprate hierarchical relatinships). Ptential users, bth regulatrs and industry, wuld be granted free and pen access t the LEI and t shared reference infrmatin fr any entity acrss the glbe and culd build this int their internal autmated systems. A high quality LEI wuld thus ffer substantial benefits t financial firms and market participants that currently spend large amunts f mney n recnciling and validating Membership f the Expert Grup cmprised representatives frm bth FSB members and key nn-members frm the glbal regulatry cmmunity with a majr stake in the initiative such as the CFTC and ESMA. The Expert Grup greatly benefited frm the active input and advice f a private sectr Industry Advisry Panel f 34 experts frm acrss the glbe as well as frm participants in a public/private sectr wrkshp in Basel in March. Cmmittee n Payment and Settlement Systems and Technical Cmmittee f the Internatinal Organizatin f Securities Cmmissins, Reprt n OTC derivatives data reprting and aggregatin requirement, final reprt, January

30 cunterparty infrmatin, as well as ffering majr gains t risk managers and the regulatry cmmunity in relatin t the identificatin, aggregatin and pling f risk infrmatin. Public sectr interests and uses A system enabling unique identificatin f legal entities, supprted by high quality reference data, ffers substantial benefits acrss a wide range f regulatry wrk and financial stability analysis. The LEI prvides a pwerful fundatinal tl t enhance the mnitring and management f systemic risks. Amng the ptential benefits are: Imprved data aggregatin and analysis: It will be easier t cmbine and verify data, bth within individual firms, supprting micrprudential risk assessment, and acrss firms, supprting the mapping f system-wide risks and macrprudential assessment. That shuld als imprve the quality, accuracy and integrity f regulatry data capture systems and f financial data verall. The first use f the LEI in a number f jurisdictins will be fr the reprting and aggregatin f data n OTC derivatives as recmmended by CPSS-IOSCO 25. Enhanced prudential supervisin: As well as supprting better internal risk management, a cmmn identifier will facilitate infrmatin sharing abut legal entities between regulatrs and acrss brders. That will enable better supervisin f crss-brder firms and firms whse business lines are verseen by multiple regulatrs. Supprt fr rderly reslutin: Imprved clarity n internal structures f cmplex firms and n expsures by individual legal entity will supprt enhanced crisis management and reslutin 26. Prtectin against market abuse: Clear and unique identificatin f parties t financial transactins shuld act as a bulwark against market abuse and help t curb financial fraud. Private sectr interests and uses Intrductin f a high quality glbal LEI system wuld als prvide substantial gains t private sectr participants in financial markets. Particular benefits include: Imprved risk management: The LEI wuld enable firms t strengthen the accuracy, integrity, and aggregatin f data acrss entities and subsidiaries and thus imprve cunterparty risk data and management, as well as supprting enhanced data mdelling and analysis. Better data wuld als facilitate limit setting and psitin mnitring. Operatinal efficiency: Many firms spend large sums f mney n data cleaning and recnciliatin f data and psitins acrss different business lines and internal entities. An accurate glbal LEI system with widespread take up amng financial market participants culd lead t large gains in prcessing and settlement efficiency, by enabling and underpinning autmated straight thrugh prcessing f infrmatin Cmmittee n Payment and Settlement Systems and Technical Cmmittee f the Internatinal Organizatin f Securities Cmmissins, Reprt n OTC derivatives data reprting and aggregatin requirement, final reprt, January FSB, Key Attributes f Effective Reslutin Regimes fr Financial Institutins, Octber

31 Such gains wuld benefit all financial market users, as efficiency savings are passed n t custmers. Enhanced regulatry reprting: A glbal LEI system shuld lead t mre precise and accurate regulatry reprting, as well as supprting the prductin f data fr recvery and reslutin planning. Glbal cverage The benefits f a legal entity identificatin system arise frm widespread adptin. As with ther identificatin systems and netwrks, users btain additinal benefits the mre ther users adpt the system. The maximum benefits cnsequently accrue frm eventual implementatin acrss the whle glbal financial system. T supprt that ultimate aim, an imprtant bjective is cnsequently t ensure that widespread take up f the system is encuraged and that apprpriate accunt is taken f imprtant natinal characteristics in designing the gvernance and peratinal characteristics f the glbal system. Glbal unique number The benefits als arise frm a guarantee f uniqueness that the LEI cde prvides an accurate and unique link t the particular registrant, and that the assciated reference data are up t date and reliable. The existence f multiple LEIs fr the same entity wuld quickly lead t a breakdwn f trust and cnfidence in the system that wuld lead t rapid bslescence and a lss f all the ptential benefits. Ensuring that each entity has a unique cde is an essential bjective f the system. CORE LEI DATA ELEMENTS (see Recmmendatin 9 fr a cmplete list) Legal entity name Address f the headquarters Address f legal frmatin Business registry ID (where applicable) Business registry name (where LEGAL ENTITY IDENTIFIER YUV8PRHOZSRFRC4JO269 Glbal cnsistency Users are lking fr high quality reliable infrmatin n all entities registered in the glbal LEI system. An imprtant bjective is cnsequently t ensure that high standards apply t the registratin f entities and t the granting f the LEI, and that there is cnsistency f apprach acrss the whle system. Examples frm ther industries There are a number f examples f successful intrductin f identificatin schemes in ther industries frm which the financial sectr can draw. Prminent examples are supply chain management in the cnsumer gds industry (using bar cde technlgy), transprtatin f hazardus chemicals, and recent initiatives t identify and cdify prducts in the entertainment and music industries. In each case there was sufficient 27

32 c-rdinatin and cllective interest t vercme the inertial frces utlined abve, and t capture the benefits frm a cmmn, unique, identificatin scheme. Recent private sectr initiatives t intrduce an LEI in the financial sectr Over the past several years, there has been renewed interest in the financial sectr in the intrductin f an LEI, stimulated by regulatry prpsals t imprve the reprting and aggregatin f data n OTC derivatives in line with G-20 recmmendatins, but als stemming frm the recgnitin f the cllective benefits t financial market participants f a unique identificatin system. The private sectr is understandably very keen t harness such benefits and t ffer prpsals fr the design and implementatin f the system that draw n private sectr expertise in building and running financial market infrastructure. It is imprtant t draw n private sectr expertise in such peratins and t marshal cmpetitive frces where pssible t prmte efficiency and encurage innvatin. A number f prpsals were put frward in respnse t the CPSS-IOSCO cnsultatin paper n the reprting and aggregatin f OTC derivatives data. A recurring aspect, hwever, in the respnses is that regulatry supprt fr the initiative is an imprtant element, t prvide cmfrt that there will be sufficient take up t vercme the disincentives that inhibit early adptin described abve. III. Key cnsideratins and challenges t vercme in building a glbal LEI system In designing and implementing a unique entity identificatin system fr parties t financial transactins, there are a number f challenges t vercme. This sectin addresses a number f market failures that have t date prevented the intrductin f such a system and hw they may be reslved. It als highlights a number f issues that need t be taken accunt f in the design and implementatin, t ensure that the maximum benefits are captured and that perverse incentives are mitigated and d nt undermine the system. Why is there nt a cmmn, accurate and cmprehensive glbal identificatin system in financial markets? Given that a unique LEI system is a simple idea which ffers manifld benefits, an bvius questin is why is such a system nt already in place? The principal reasn is that the benefits f the system are cllective and accrue t users and the brader public as a grup. There are insufficiently strng incentives in private markets t vercme tw surces f market failure: Cllective actin and c-rdinatin prblems: T take the initiative frward, there first needs t be cllective agreement that a particular identificatin system is the right ne. Each individual firm has a natural incentive t prmte their wn system as that wuld minimise the csts f adptin. Gaining widespread agreement n a cmmn system t be used by all parties is difficult. But withut it, there is n incentive t mve. Netwrk effects: As highlighted abve, the benefits frm the system increase as mre and mre parties acquire an LEI. The larger the netwrk, the larger the gains. At the launch, hwever, as with ther examples f netwrk gds such as the telephne, the private incentives fr ptential early mvers t acquire an LEI are lw. Fr example, withut extensive cverage f financial entities, there wuld clearly be little ptential benefits prvided frm better cdificatin and aggregatin f cunterparty trades and 28

33 risk psitins. T date, it has cnsequently prved impssible t get ver this initial hurdle relying purely n market incentives and vluntary adptin. These market failures supprt the view that the LEI is by nature a public gd, ffering cllective benefits that are hard t capture by private market incentives. Overcming them within the private sectr alne relies n strng c-peratin and c-rdinatin amng key stakehlders. That is necessary t ensure that there is sufficient adptin and take up by market participants t generate critical mass and t prvide netwrk benefits. In practice, public interventin, fr example, that mandates the use f the LEI fr reprting f expsures r psitins, may be needed in sme cases t break dwn such barriers and take the initiative frward. Remving such barriers wuld prvide an pprtunity fr a c-rdinated apprach between the public and private sectr in delivering a glbal LEI system. The rle f the public sectr is t put in place a gvernance framewrk that prtects the public interest. That in turn prvides a platfrm t harness the technical skills f the private sectr t deliver an effective peratinal system, underpinned by market frces and incentives. Why public sectr gvernance is required There are many areas where public and private sectr interests in the glbal LEI system are fully aligned (such as unique identificatin f entities, high quality reference data, integrity f systems, etc). But as the LEI system is by nature a public gd, there is a need t make sure that the gains fr the brader public are captured and that prvisin f the LEI is nt explited in ways that d nt benefit the public. In particular, while ffering many benefits, a ptential undesired cnsequence f active regulatry prmtin f the system is that it als prvides substantial pwer t the prvider(s) f the system. Abuse f such pwer culd wrk against the fundamental public interest. Fr example, if regulatrs mandate use f the LEI system, then bth LEI registrants and users have n alternative but t use it. The market is captive. There are cnsequently incentives fr suppliers f the LEI t explit their privileged psitin and hence risks that suppliers face incentives t vercharge registrants, restrict access, cut crners n data quality, r t use a psitin f privileged access t LEI infrmatin t supply ther revenue-generating services n nn-cmpetitive terms. These arguments prvide the mtivatin fr the mandate prvided t the FSB t prduce recmmendatins fr a gvernance framewrk fr the LEI that identifies and prvides strng prtectin f the public interest. The case fr public interventin As highlighted abve, public interventin prmting the use f the LEI is likely t be needed t vercme the market failures utlined abve. Fr example, mandatry use f the LEI fr public reprting wuld encurage respndents t adapt their internal systems t meet the new demands. A majr assciated benefit is that cnsistent intrductin f the public requirement reslves the cllective actin prblem (as all reprters are required t use the chsen system) and helps t slve the netwrk prblem (as the public interventin eliminates the initial disincentives t adpt the system at the start). Prmtin f the LEI by the glbal regulatry cmmunity wuld cnsequently ffer multiple benefits t bth the public and private sectrs. Unifrmity f principles, standards, and peratinal appraches T fster cnfidence in the quality f the LEI which is essential if there is t be widespread adptin and usage, it is imprtant that there is a unique identifier fr each acquiring entity, and that there are high, cnsistent peratinal principles and standards applied t the riginatin and maintenance f an LEI. Such principles and standards will facilitate the cnsistent integratin int a glbal 29

34 system f entities frm jurisdictins with different regulatry, legal systems and lcal language character sets that are imprtant t reflect and take int accunt if all such jurisdictins are t feel cmfrtable in jining the system. The gvernance framewrk and peratinal mdel implementatin must ensure that the cmmn standards are applied acrss the system t deliver the necessary cnsistency, and enable users t access the whle system frm a cmmn surce. The glbal reach: expandability and adaptability In rder t generate the maximum netwrk benefits frm brad cverage, it is imprtant that the system has the capacity t expand quickly t include new jurisdictins and new registrants. Clear prcesses and prtcls shuld be in place t facilitate the integratin f registrars and registrants frm new members int the system. It is als crucial that the glbal system is flexible, extendible and adaptable t take accunt f changes in financial markets and new ptential uses. Fr example, there must be clear prcedures fr the identificatin and intrductin f new reference data where warranted. Cnfidentiality challenges The gains frm the intrductin f the glbal LEI arise frm unique identificatin f entities, frm the links t high quality reference data relating t the entities, and frm widespread adptin f the system. The prvisin f pen and free access t publicly available data is an imprtant bjective. One challenge is that there are cnfidentiality and privacy restrictins gverning sme ptentially imprtant reference data in sme cuntries, particularly regarding infrmatin n crprate relatinships and wnership structures. Such data are imprtant t bth the glbal regulatry cmmunity and private firms as they enable aggregatin f infrmatin within cmplex financial grups which is essential t the analysis f expsures and t the develpment f imprved systemic risk measures. The gvernance system design must, therefre, take accunt f the legal cnstraints n the strage and transmissin f such data, fr example, by ensuring that the data are stred in particular jurisdictins and that there are rigrus cntrls n access. Incentives fr regulatry and industry adptin As highlighted abve, supprt frm the regulatry cmmunity fr the adptin f the LEI in different areas f regulatry reprting wuld help t break dwn the cllective actin prblems and stimulate usage and take up. A key cnsideratin in the design f the prpsed gvernance framewrk and peratinal mdel is cnsequently t ensure that the apprach meets the requirements and needs f the regulatry cmmunity acrss the glbe, in rder t deliver widespread buy in. Equally, it is imprtant that the adpted apprach meets the needs f financial market participants fr a unique entity identificatin scheme, s that vluntary take up is encuraged alngside usage prmted by financial regulatrs. Ensuring that there are incentives t attract market participants t register vluntarily fr an LEI is cnsequently an imprtant gal. The rle f the private sectr in delivering the glbal LEI system While the public sectr has a key rle t play in vercming market failures and prviding an accmpanying strng gvernance framewrk t prtect the public interest, the private sectr has an equally imprtant rle in building and perating the system that delivers the glbal LEI. Experience frm many ther industries in develping, designing and successfully implementing identificatin systems clearly demnstrates that the challenge f building a glbal LEI system fr the financial sectr is nt primarily technlgical. But equally, it is essential t draw effectively n private sectr expertise and knw hw t make sure that the peratinal 30

35 framewrk is efficient, technically sund and rbust, and benefits wherever pssible frm market frces and cmpetitin. A key aim f the gvernance framewrk is t set ut a platfrm f bjectives, guidelines, and standards fr the glbal LEI system which then enables the private sectr t innvate in delivering technical and peratinal slutins. The challenge is t ensure that the framewrk prvides the apprpriate incentives t leverage private sectr expertise and experience, and t benefit frm market frces wherever pssible acrss a range f issues: Technical and peratinal expertise: the private sectr has cnsiderable expertise in designing, building and perating identificatin schemes in ther industries, as well as in sme areas f the financial services sectr (such as schemes fr identificatin f securities and systems fr bank transfers). Lcal expertise: t deliver a truly glbal system, specialist knwledge f lcal legal framewrks, crprate structures, as well as availability f the system in lcal languages, etc is critical. Encuraging cmpetitin and innvatin: subject t ensuring accrdance with the agreed cmmn standards, encuragement f cmpetitin and innvatin is desirable t prmte efficiency and lwer csts. Prmting cnsistent standards: the private sectr has cnsiderable experience in the design and peratin f cnsistent technical standards. Public private sectr c-rdinatin Drawing n the elements abve, develping and implementing a glbal LEI system requires active supprt and invlvement frm bth the glbal regulatry cmmunity and frm the private sectr. The public sectr must put in place a gvernance framewrk with a number f key bjectives: t supprt the delivery f a public gd; t ensure that public interests in the system are prtected; t prmte cmmn standards; and t facilitate widespread glbal adptin. Such a framewrk will prvide a transparent, pen system, that prtects against the risk f abuse f mnply pwer and privilege, and that facilitates adptin. Under this brad gvernance framewrk, it is imprtant t prvide market incentives fr the private sectr t develp and implement effective peratinal slutins: t draw n expertise and specialism in lcal jurisdictins and glbally in the develpment and peratin f registratin, identificatin and infrmatin systems; t gain frm the benefits f cmpetitin while facilitating c-perative slutins where apprpriate; and t prmte standardisatin f appraches acrss the glbe that benefit internatinal financial markets and glbal financial integratin. The prpsals and recmmendatin in the reprt cnsequently set ut a framewrk that attempts t capture the benefits f bth public sectr and private sectr invlvement in taking frward the glbal LEI initiative, while attempting t bridge different views n the apprpriate bundary between public and private sectr respnsibilities. 31

36 IV. Principles underpinning the framewrk and design f the glbal LEI system Based n the abve analysis f the main challenges and ptins t vercme them, the FSB has set ut a number f recmmendatins and principles that help t set ut the framewrk and design f the glbal LEI system and t take the initiative frward. Subsequent sectins prvide a series f practical recmmendatins fr implementatin in each f the areas f the detailed mandate that draw n these principles. Recmmendatin 1 SETTING UP A GLOBAL LEI SYSTEM The FSB strngly supprts the develpment and implementatin f a glbal LEI system that uniquely identifies participants t financial transactins. Recmmendatins fr the public sectr Recmmendatin 2 GLOBAL REGULATORY COMMUNITY REQUIREMENTS The LEI system shuld meet the requirements f the glbal regulatry cmmunity (including supranatinal rganisatins). The ptential benefits f the LEI include: t supprt authrities in fulfilling their mandates t assess systemic risk and maintain financial stability; cnduct market surveillance and enfrcement; supervise market participants; cnduct reslutin activities; prepare high quality financial data and undertake ther regulatry functins. As set ut earlier, the glbal LEI system ffers substantial ptential benefits t the glbal regulatry cmmunity. It is imprtant that the gvernance framewrk and system design prvide a framewrk that enables regulatry requirements t be fulfilled and that ffers flexibility t adapt t changing regulatry requirements as financial markets adjust. The framewrk must als prvide flexibility fr expansin, as jurisdictins and regulatry authrities will implement the LEI system n a phased basis. Recmmendatin 3 GLOBAL LEI SYSTEM GOVERNING DOCUMENTS Glbal LEI system High Level Principles set ut the principles and cmmitments that specify and define the gvernance and structure f the glbal LEI system. A glbal LEI Regulatry Oversight Cmmittee Charter shuld specify the missin, rle and respnsibilities f the Cmmittee as well as the prcess fr its establishment. Supprt fr the High Level Principles agreement and Charter will indicate a desire t participate in the glbal LEI system. T prvide high level cmmitment and supprt fr a glbal gvernance framewrk fr the LEI, the FSB recmmends supprt fr High Level Principles fr the glbal LEI system and that a glbal LEI Regulatry Oversight Cmmittee Charter shuld be drawn up in the cming mnths. The Charter wuld establish a Regulatry Oversight Cmmittee (ROC) t represent the public interest in the functining f the LEI system. As discussed further belw, the Cmmittee wuld serve as the primary gverning bdy. The Charter wuld specify the missin, respnsibilities, and pwers f the ROC, as well as the cmmitments attached t the 32

37 prpsed gvernance framewrk which is set ut in Sectin VII belw. The principal idea behind the High Level Principles dcument and the ROC Charter is t embed high level supprt fr the system and its guiding principles and t garner cmmitment t implement a glbal gvernance framewrk in rder t maximise the benefits. All authrities and jurisdictins willing t participate in the develpment f the glbal LEI Charter shuld be able t d s withut any hindrance. Recmmendatins fr the Private Sectr Recmmendatin 4 SUPPORT OF FINANCIAL MARKET PARTICIPANTS The LEI system shuld be designed in a manner that prvides benefits t financial market participants. As emphasised abve, widespread adptin f a cmmn LEI system ffers substantial ptential benefits t private financial market participants. These include: fulfilling dmestic and multi-jurisdictinal regulatry and statistical reprting requirements; facilitating straightthrugh prcessing; imprving internal risk management and ther business purpses. Such a system shuld accmmdate the business needs f all financial market participants, including financial and nn-financial cmpanies f different sizes and type, sited in different gegraphic lcatins acrss the glbe and prvide pen access t the glbal LEI data in a cmmn language, while accmmdating lcal jurisdictinal differences such as lcal language and legal framewrk. It is imprtant that the design and peratin f the system enables such benefits t be captured effectively and efficiently. Recmmendatin 5 SYSTEM FLEXIBILITY Flexibility must be built int the glbal LEI system t prvide the capability fr the system t expand, evlve and adapt t accmmdate innvatins in financial markets. It must als allw the seamless intrductin f new participants. T these ends, critical sftware and ther relevant elements must be defined and made publicly available withut any licensing, intellectual prperty r similar restrictins under pen surce principles. The LEI shuld be prtable 27 within the glbal LEI system. A key bjective is t ensure that the system can expand t incrprate new users and new uses and that sufficient flexibility is built int the system design t facilitate adaptatin t financial market innvatins and assciated changes in regulatry and market requirements. A secnd key element is that the design shuld be pen and nt prprietary, s that any ptential candidate wishing t ffer relevant services can d s, subject t meeting the agreed cmmn standards necessary t deliver an integrated system. This bjective is als essential t prmte cmpetitin and t fster innvatin. 27 In this cntext a prtable LEI means that the cde culd be transferred frm ne LOU t anther LOU. This may be necessary, fr example, in case f the LEI being btained riginally frm a freign LOU befre a lcal LOU was established r if an entity changed its legal address r headquarters, etc. 33

38 Recmmendatin 6 COMPETITION AND ANTI-TRUST CONSIDERATIONS The LEI system shuld be designed t ensure that it is nt lcked-in with a particular service prvider fr any key system functins r prcesses, and that the principles f cmpetitin are ensured n bth glbal and lcal levels where apprpriate. The gvernance framewrk shuld prvide safeguards t ensure that cmpetitin principles and anti-trust cnsideratins are upheld. The lcal implementatin f the glbal LEI system shuld meet lcal anti-trust requirements. It is imprtant that prtectins are built int the system t avid vendr r third party supplier dependence that is assciated with a build up f market cncentratin and pwer. Flexible system design and cntrl f intellectual prperty rights are imprtant tls t avid prviding pwer t the prviders that ensures that the system relies n their services, r that the system cannt functin in the event that a particular supplier f services enters inslvency. Given the risks that mandatry regulatry use f the LEI culd create privileged psitins in the market place, it is imprtant that due cnsideratin is given t anti-trust bligatins in terms f the arrangements fr the prvisin f identifiers. In particular, it is imprtant that cmpetitin law and anti-trust cnsideratins are factred in and that apprpriate prtectins are put in place t prevent abuse f mnply psitins. Subject t meeting the cmmn standards f the glbal LEI system, encuraging cmpetitin, wherever apprpriate, is highly desirable t cntrl mnply privileges, t help cntain csts, stimulate efficiency and prmte innvatin. Recmmendatin 7 FEDERATED NATURE OF THE LEI SYSTEM The glbal LEI system shuld supprt a high degree f federatin and lcal implementatin under agreed and implemented cmmn standards. A key bjective is t encurage widespread glbal take up f the LEI system. Subject t meeting the cmmn prtcls and standards that are needed t tie the system tgether t prvide a lgically cnsistent database that guarantees unique identificatin (prvided by the COU); the FSB recmmends that the glbal LEI system shuld supprt a high degree f federatin and lcal implementatin. That is likely t prvide additinal flexibility, fr example t map and incrprate existing lcal registratin and identificatin schemes int the glbal system and thus supprt the key bjective. The federated system will als allw the accmmdatin f lcal jurisdictinal differences such as a lcal language, legal framewrk, etc. In particular, the FSB recmmends that the glbal LEI system shuld be designed, perated and gverned in a manner that ensures unique identificatin and cnsistency at the glbal level, while drawing n distributed lcal elements and lcal infrastructures that give additinal flexibility t prvide a high level f validatin f the lcal registratin data and t meet lcal jurisdictinal requirements. Althugh lcal peratins may perate flexibly, all must meet a cmmn requirement f presenting a cmmn interface between lcal data systems and the glbal registry system. 34

39 V. Scpe, scale and initial ambitins An LEI cmprises a unique machine readable cde identifying the entity, that pints t a set f key reference data relating t the entity, such as the name, address, etc. Users shuld have pen access t any LEI issued by the system, and t reference data that can be readily shared and that are nt subject t privacy restrictins. This sectin f the reprt addresses the questins: What is an LEI? Which entities are eligible fr an LEI (ie What is the ptential scpe f cverage)? What frm shuld the cde take and what reference data shuld be attached bth at the launch f the system, as well as in the shrt t medium term? And what prcesses shuld be intrduced t supprt the review and phased expansin f the reference data ver time as financial markets adapt and as usage f the LEI system grws? Recmmendatin 8 SCOPE OF COVERAGE Eligibility f legal entities t apply fr an LEI shuld be bradly defined, in rder t identify the legal entities relevant t any financial transactin. N mre than ne LEI may be assigned t any legal entity. Fr purpses f this definitin, the term legal entity refers t a legal persn r structure rganised under the laws f any jurisdictin. Legal entities include, but are nt limited t, unique parties that are legally respnsible fr the perfrmance f financial transactins r have the legal right in their jurisdictin t enter independently int legal cntracts, regardless f whether they are incrprated r cnstituted in sme ther way (eg trust, partnership, cntractual, etc). It excludes natural persns, but includes gvernmental rganizatins; and supranatinals, defined as gvernmental r nn-gvernmental entities established by internatinal law r treaty r incrprated at an internatinal level. Examples f eligible legal entities include, withut limitatin: all financial intermediaries; banks and finance cmpanies; all entities that issue equity, debt r ther securities fr ther capital structures; all entities listed n an exchange; all entities that trade stck r debt; investment vehicles, including mutual funds, pensin funds and alternative investment vehicles cnstituted as crprate entities r cllective investment agreements (including umbrella funds as well as funds under an umbrella structure, hedge funds, private equities, etc); all entities under the purview f a financial regulatr and their affiliates, subsidiaries and hlding cmpanies; and cunterparties t financial transactins. The definitin abve crrespnds t the ISO standard 17442:2012 fr a Legal Entity Identifier. It takes int accunt the pssibility that in sme jurisdictins, asset pls r ther segregated parts f a legal entity may nevertheless carry separate rights and bligatins at a sufficient level f independence f that legal entity. In such cases, fr example, any claim in inslvency wuld apply t the asset pl alne. The Expert Grup supprts the view that in such jurisdictins, the asset pl r fund wuld be eligible fr an LEI. The LEI Implementatin Grup shuld further study the scpe f applicatin with respect t entities that are nt strictly legal entities t ensure that nly ne LEI is assigned t any particular entity fr example in a structure f an umbrella fund, assciated funds, and a fund manager, t address the cases similar t thse discussed abve. The Expert Grup is als aware that detailed definitins f legal entities may depend n lcal laws and that further specificatin cnsidering lcal circumstances may be needed in sme cases as the LEI system is implemented. 35

40 Recmmendatin 9 LEI REFERENCE DATA AT SYSTEM LAUNCH The fficial name f the legal entity, the address f the headquarters f the legal entity, the address f legal frmatin, the date f the first LEI assignment, the date f last update f the LEI, the date f expiry, business registry infrmatin (if applicable), alngside a 20 digit alphanumeric cde shuld frm the basis fr the glbal system at the launch f the glbal LEI initiative. Fr entities with a date f expiry, the reasn fr the expiry shuld be recrded, and, if applicable, the LEI f the entity r entities that acquired the expired entity. As previusly annunced 28, the technical cde fr the LEI shuld be a 20 digit alphanumeric number as set ut in the LEI standard recently published by the Internatinal Organisatin fr Standardisatin. The cde shuld be a unique dumb alphanumeric string and nt incrprate any intentinal embedded intelligence (such as a cuntry reference) which culd lead t the cde becming ut f date. The cde shuld be persistent, in the sense that the cde wuld never be assigned t anther entity. The fllwing set f reference data attributes are regarded as the minimum set f infrmatin that shuld be available at the launch f the LEI as specified in ISO 17442:2012: The fficial name f the legal entity; The address f the headquarters f the legal entity; The address f legal frmatin; The date f the first LEI assignment; The date f last update f the LEI; The date f expiry, if applicable; Fr entities with a date f expiry, the reasn fr the expiry shuld be recrded, and if applicable, the LEI f the entity that acquired the expired entity 29 ; The fficial business registry where the fundatin f the legal entity is mandated t be recrded n frmatin f the entity, where applicable; The reference in the fficial business registry t the registered entity, where applicable. The first six items have been previusly annunced by the FSB, as items belnging in the set f minimum reference data at the launch f the LEI. The seventh item has been included in the list t prvide infrmatin n the histry f the entity, particularly if it is invlved in a merger and acquisitin and/r ther frm f crprate actin prcess. The final tw items prvide a crss reference t the fficial business registry entry which prvides the legal fundatin fr the frmatin f the legal entity applying fr an LEI (such as Cmpanies Huse in the UK, fr example). Such a reference will help t tie the glbal LEI system tgether as a registry f registries and prvide a strng crss-referencing and data validatin tl Technical features f the legal entity identifier (LEI) FSB 7 March This is smetimes labeled the dispsitin f the LEI. 36

41 Recmmendatin 10 REVIEW OF SCOPE OF COVERAGE AND REFERENCE DATA The Regulatry Oversight Cmmittee shuld undertake regular reviews f the scpe and extent f cverage f the LEI t reflect emerging regulatry and market requirements fr the LEI use accrding t an agreed schedule. The Regulatry Oversight Cmmittee shuld undertake regular reviews f the LEI reference data accrding t a set schedule t mnitr the required changes, additins, retirements and mdificatins. The prpsed ROC wuld mnitr and review the scpe and extent f cverage f the LEI (fr example by agreeing a timetable fr peridic reviews which is likely t be mre intense in the early years f the LEI system). A particular issue fr early review is fr the ROC t cnsider whether and if s hw the glbal LEI can be leveraged t identify bdies such as branches f internatinal banks which are nt legal entities, but which require separate identificatin under sme crss-brder reslutin schemes 30. The ROC wuld als regularly mnitr and review the reference attached t the LEI accrding t a pre-set schedule which again is likely t be mre intense during the early stages f the system. In particular, the Expert Grup identified a number f ptential reference data items fr future cnsideratin: Organisatin type what is the crprate legal structure f the registered entity? Brader liability and ther relatinships including elements such as cntrl and guarantees. Prblem indicatrs such as rerganisatin, etc. Cnglmerates flag is the registered entity a part f a brader financial cnglmerate? Crprate events flag are there particular crprate actins r events affecting the firm? Industrial classificatin what is the principal activity f the firm? In putting frward these ideas fr further review, the FSB is cgnisant that there is an imprtant trade ff between expanding the scpe f cverage and the set f reference data and the burden n entities and registrars in reprting and keeping the infrmatin up t date. The ROC will bear such cst-benefit cnsideratins in mind as any prpsals fr bradening the scpe f cverage r reference data are reviewed. Recmmendatin 11 STANDARDS FOR THE LEI SYSTEM The LEI system shuld meet, t the degree pssible, evlving requirements f bth the regulatry cmmunity and industry participants in terms f infrmatin cntent, scpe, timeliness and availability. The ROC is respnsible fr 30 One apprach may be t build r blt n a supplementary system n tp f the LEI, althugh a full range f ptins will be assessed by the ROC. 37

42 the final determinatin fr any standards fr the LEI t be utilised in the glbal LEI system. When prpsing areas fr the develpment f new standards, the ROC shuld strngly cnsider utilising existing standard setting rganizatins t develp such standards, prvided that such rganizatins incrprate the requirements fr the standards as determined and cmmunicated by the Regulatry Oversight Cmmittee. The set f reference data utlined the previus recmmendatin prvides a minimum set f data that shuld be available at the launch f the LEI (smetimes labeled Phase 1 data). In phase 2, it will be imprtant t expand and add t this list, as additinal reference infrmatin, fr example, n crprate wnership and relatinships (see recmmendatin belw) is essential in rder t aggregate risks and prepare cnslidated expsure statements. A key rle f the ROC will be t review and mnitr evlving needs and requirements f the regulatry cmmunity as well as prpsals frm private sectr users in relatin t the reference data t be included in the glbal LEI system. When new needs are identified by the ROC, the Cmmittee shuld draw n the expertise f existing standard setting rganisatins in develping such standards, prvided that such develpment fully incrprates the specificatin and framewrk set ut by the ROC. Because bth risk aggregatin acrss grups is imprtant fr regulatrs and industry, and because relatinship data may be imprtant in defining the nature f an entity, this wrk has a very high pririty fr bth regulatrs and fr private industry. Recmmendatin 12 LEI REFERENCE DATA ON OWNERSHIP The FSB LEI Implementatin Grup shuld as sn as pssible develp prpsals fr additinal reference data n the direct and ultimate parent(s) f legal entities and n relatinship r wnership data mre generally and prepare recmmendatins by the end f The grup shuld wrk clsely with private sectr experts in develping the prpsals. Adding infrmatin n wnership and crprate hierarchies is essential t be able t undertake risk aggregatin which is a key bjective fr the glbal LEI system. That shuld be taken frward urgently by the prpsed FSB LEI Implementatin Grup, with the aim f develping practical prpsals fr such (phase 2) reference data by the end f Ultimately the aim is t have sufficient data t cnstruct a map f the financial netwrk and the cmplex grups f entities which participate in them. The task requires standardized, machine readable infrmatin which underlies the netwrk map. The mre prcesses are autmated, the mre accurate the map will be. The mre data rely n manual updating, the mre degraded the map will becme. Ideal slutins t capture wnership relatinships in the lng run, such as parent and ultimate parent, wuld rely n infrmatin n the ttal share capital f all cmpanies in the grup, the sharehlding f the parent entity, and LEIs fr all the cmpanies in the grup. If such infrmatin were available, it wuld be pssible t cnstruct sharehldings and vting cntrl thrugh the financial grup. Such infrmatin is nt available in the shrt term, hwever, and s ther slutins must be fund. The FSB cnsequently recmmends urgent further study f the ptins in rder t 38

43 develp firm prpsals in six mnths time n the best way frward. Interested parties within the regulatry cmmunity wuld be invited t jin the study active advice frm relevant private sectr experts wuld be an imprtant element f the prcess. One additinal and imprtant challenge in addressing this issue is that sme infrmatin n crprate wnership and hierarchies is prtected by cnfidentiality and privacy restrictins in sme jurisdictins. That will clur where data can be stred, and what can be shared and exchanged. Ideally, legal and technical arrangements can be put in place t enable sharing f cnfidential infrmatin amng the glbal regulatry cmmunity that requires sme additinal scrutiny by the prpsed grup ver the next six mnths. Further examinatin shuld als be undertaken f the scpe t prvide nn-cnfidential infrmatin n wnership relatinships t all users. Recmmendatin 13 LEI OPERATIONAL AND HISTORICAL DATA The LEI system shuld maintain high quality recrds that retain relevant infrmatin n amendments (query, add, mdify r delete f any data element) t data items as well as additinal data t facilitate the surveillance and cntrl f the system by the COU where apprpriate. The LEI system, if successful, will receive a large amunt f infrmatin n bth registered entities and use f the system. Initial data will be entered fr registered entities which may change ver time, either as changes ccur t circumstances f the cmpany and t the assciated reference data r as errrs are detected. The system shuld als retain all relevant infrmatin n any changes made t data items fr each entity, including a reference t the data field changed, the date f the change, a classificatin f the reasn fr change, a classificatin f the surce f the change, and the value f the item befre the change was made. It is very imprtant t maintain a full histry f changes in LEI reference data, in rder t maintain a strng audit trail in case f queries, and t enable users t be able t track the time line f changes and t challenge the accuracy f infrmatin with a view t checking and t subsequent cnfirmatin r amendment. Users may perfrm varius queries r dwnlads, they may ask fr help, r they may challenge the accuracy f data in the LEI System. Organizatinal and ther peratinal data shuld be cllected t increase the efficiency, accuracy and utility f the System. VI. Pulling the LEI system tgether The glbal LEI system shuld be implemented accrding t a glbally federated mdel. Such a structure will allw the accmmdatin f lcal jurisdictinal differences such as language, legal framewrk, etc, while als prviding fr the COU t perfrm the central functins f the glbal LEI system. Bth the cnceptual apprach and technical features f the federated nature f the glbal LEI system have been addressed by the Industry Advisry Panel as well as LEI wrkshp participants. 39

44 One f the cmments highlighted that in rder t achieve the glbal applicatin f a standard, it has t be able t accmmdate the different rules, regulatins, custms, languages, preferences and practices that apply in different svereign states and jurisdictins. That wuld naturally lead t the establishment f lcal registratin facilities that are able t address these lcal characteristics in a meaningful way. Anther argument put frward during the wrkshp was that a federated mdel can lead t lwer csts and increased quality f service t end users thrugh cmpetitin. While the cncept f federatin can have different meanings, fr the purpse f the LEI system a federated mdel implies, as a minimum: A service is prvided that appears t end users t be a single, glbal service the same data are available anywhere in the wrld, regardless f where they were entered. Internally, the service is actually deplyed as a netwrk f multiple service prviders, wh cllabrate and use technlgy t prvide the appearance t end users f a single seamless service. If any LOU becmes islated frm the rest f the federatin, the services prvided by that unit cntinue t functin fr the unit s lcal end users, at least fr the purpse f dmestic transactins. While this framewrk impses requirements n the system architecture, it prvides flexibility that encurages jurisdictins t adpt the system. One wrkshp cmmenter nted that the key element f the glbal LEI system peratinal mdel is nt technlgical r f data replicatin but gvernance. Fr example, the peratr f the central registry culd use a replicated database that has elements hsted in data centres arund the wrld. While this apprach allws technlgical diversificatin in case f IT failure, it des nt eliminate the plitical cncern f ne cuntry registry denying services r access t anther cuntry. That is why the federated architecture f the glbal LEI system emplying LOUs wuld address cncerns abut natinal svereignty. That architecture als allws fr diversity in bth gvernance and services ffered. Fr example, ne cuntry may have a strng preference fr a critical utility like the LEI registry t be perated as a gvernmental r quasi-gvernmental agency specified under natinal law. Anther cuntry may prefer a private cmpetitive market, in which case there might be mre than ne LEI registry that ffers services within that jurisdictin, with the resulting cmpetitin serving t drive dwn prices and increase flexibility fr end users. Althugh a federated mdel can be designed in a number f ways, the key cnsideratin in the glbal LEI federated system is t be able t prvide an LEI t any legal entity as defined in the scpe f cverage, regardless f cuntry lcatin r language used. Fllwing this principle, a tw level federated mdel can be described with the fllwing cmpnents: 1. Central Operating Unit (COU) in charge f central facilities, ensuring uniqueness f the glbal LEI, glbal LEI administratin and with respnsibility fr ensuring apprpriate prtectin f the key data. 2. Lcal Operating Unit (LOU) that is in charge f lcal facilities, lcal infrmatin fr the jurisdictin (i.e. cnfidential infrmatin, frmer lcal identificatin number), and registry 40

45 peratins. It wuld als be in charge f prcessing LEI applicatins and verifying cmpany authenticity. The key element here is that it shuld be able t accmmdate lcal languages and lcal legal framewrks. Central Operating Unit Lcal Operating Unit Lcal Operating Unit Lcal Operating Unit Experts n the Industry Advisry Panel explained that there are a variety f ways hw federated distributed netwrk architecture can be designed. One way is t have a single searchable registry (COU) t which lcal perating units (LOUs) submit minimal reference data sets abut lcal registrants while hlding lcally additinal, ptentially nn-standardized data with pinters back t the central registry. Alternatively, fr example, the reslutin system that ensures uniqueness f LEIs culd hld the minimum set f data, the central registry hlding the extensive set f data and lcal units being exclusively prcessrs f the submitted data. The latter mdel creates sme validatin and duplicatin challenges. Hwever, it was emphasised that architecturally, the COU sftware des nt need t be restricted t a single central registry scenari. Multiple registries culd be built t run in parallel t each ther s that when a new entry r a change is made anywhere in ne registry, it wuld be immediately reflected in ther system cmpnents. In that case, each f thse registries culd theretically functin as a stand alne registry that lwers the risks f a critical pint f failure. Alternatively, each f the lcal registries culd cntain nly a subset f all the registered data and technlgy wuld enable a query t any individual registry t be executed via a query f all linked registries. Recmmendatin 14 CENTRAL OPERATING UNIT The missin and rle f the Central Operating Unit shuld be t ensure the applicatin f unifrm glbal peratinal standards and prtcls that deliver glbal uniqueness f the LEI, seamless access t the glbal LEI and t high quality reference data fr users with depth f access cntrlled by apprpriate access rights, as well as prtcls and methds fr hw lcal systems can cnnect t the Central Operating Unit. 41

46 The COU shuld be respnsible fr maintaining a central lgical database f identifiers and crrespnding reference data t: Ensure quality and accuracy f data. Prvide a set f services that facilitate expansin f the system, such as defined standardised interfaces (sftware and services) that allw new jurisdictins t jin the system in a lw-cst, pen surce manner and that prvide educatinal and training materials that dcument the requirements, csts, and advantages fr lcal jurisdictins t jin the system. Ensure that the system des nt becme technically bslete ver time by perfrming nging evaluatin and develpment f relevant standard and prtcls fr the verall cmmunity (public and private sectrs). Ensure that the infrmatin within the system is secure and prevents fraudulent activities. In develping the rules and prcedures fr peratins f the COU the ROC shuld cnsult the CPSS-IOSCO recmmendatins fr Principles fr Financial Market Infrastructure 31. Amng ther imprtant tasks, the COU under the supervisin f the ROC shuld identify the plausible surces f peratinal risk, bth internal and external, and mitigate their impact 31 Principles fr Financial Market Infrastructure, April

47 thrugh the use f apprpriate systems, plicies, prcedures, and cntrls. Systems shuld be designed t ensure a high degree f security and peratinal reliability and shuld have adequate, scalable capacity. Business cntinuity management shuld aim fr a cntinuus service and fr timely recvery f peratins in the event f a wide-scale r majr disruptin 32. At a minimum, the fllwing three business cntinuity bjectives shuld be meaningfully addressed in the develpment f the COU and its prtcls and prcedures: rapid recvery and timely resumptin f critical peratins fllwing a wide-scale disruptin; rapid recvery and timely resumptin f critical peratins fllwing the lss r inaccessibility f staff in at least ne majr lcatin; and a high level f cnfidence, thrugh nging use r rbust testing, that critical internal and external cntinuity arrangement are effective and cmpatible 33. Recmmendatin 15 FORMATION OF THE CENTRAL OPERATING UNIT The LEI Implementatin Grup shuld develp a detailed plan fr the frmatin f the Central Operating Unit via the establishment f a nt-fr-prfit LEI fundatin 34 by interested industry participants under the versight f the frmed LEI Regulatry Oversight Cmmittee. The fundatin wuld rely n industry participants, their expertise and knwledge t identify and develp the mst technlgically, financially and legally sund methds t implement the glbal LEI system in line with the standards and framewrk defined by the Regulatry Oversight Cmmittee. Representatives frm all gegraphic areas and industry sectrs wuld be invited t participate in the preparatry wrk underpinning the frmatin f the LEI fundatin as the Central Operating Unit in a manner defined by the Implementatin Grup. The LEI system shuld be designed and implemented as a truly glbal system in rder t capture the full ptential benefits. T achieve that, the COU must be set-up and perated in a clear and transparent manner where all stakehlders are meaningfully represented, encmpassing wide gegraphic cverage and business sectrs. A cllabrative apprach based n industry cnsensus n technical and peratinal slutins shuld be the ultimate bjective f the COU structure and its design and gvernance shuld ensure that it can be achieved in the mst effective way. The FSB cnsiders that a legal frm f fundatin r bdy f equivalent legal frm wuld prvide a catalyst fr such internatinal and crsssectinal cperatin and crdinatin, where the best ideas applicable fr the glbal LEI system can be utilised, drawing n the experience f varius experts frm either finance r ther sectrs wh have experience in the design and successful implementatin f entity Principles f Financial Market Infrastructure, April Interagency paper n sund practices t strengthen the resilience f the U.S. Financial system, April 11, 2003, Federal Register Vl. 68, N.70. Or bdy f equivalent legal frm. 43

48 identificatin systems. Prviding an pen, transparent and brad access t such industry cllabratin will ensure that the mst technlgically advanced and cst-efficient slutins are prpsed and drawn n in the design and develpment f the federated glbal LEI system. The brad participatin f varius industry representatives in the LEI fundatin will reinfrce pen cmmunicatin within the industry t address nt nly technlgical changes but als structural, legal and plicy cnsideratins n bth lcal and central levels. As ne f the wrkshp participants nted, the design f the riginal system and the methdlgy fr its deplyment will have a direct impact n hw well the future system can cpy with mdificatins. T achieve a high degree f system adaptability in the future, the invlvement f a wide range f industry experts frm different sectrs shuld be an integral cmpnent f the COU structure and shuld be a fundamental key element f its design. Recmmendatin 16 BALANCED REPRESENTATION IN THE CENTRAL OPERATING UNIT The Regulatry Oversight Cmmittee and LEI Implementatin Grup shuld ensure that the glbal LEI fundatin takes accunt f the interests f financial and nn-financial industry participants frm different gegraphic areas and ecnmic sectrs. The glbal LEI Central Operating Unit shuld have a wide representatin f experts frm different sectrs f ecnmy including financial and nn-financial sectrs industry representatives. As emphasised during the LEI wrkshp in March, ther industries have made enrmus prgress ver recent years twards imprving their identificatin systems. Cnsequently, drawing extensively n the knwledge and experience f experts invlved in such successful schemes will allw the financial sectr regulatrs as well as industry t avid bvius mistakes, as well as facilitating the chice f the best available slutin in terms f implementatin time and cst. It was highlighted at the LEI wrkshp that rganizatins such as Cnsumer Prduct Frum, GS1, Digital Object Identifier Fundatin, Entertainment ID Registry, Wrld Wide Web Cnsrtium amng thers have a wide range f experience and knwledge in areas such as identificatin, the build-up f hierarchy relatinships, and f distributed netwrk set-ups which are necessary fr the successful develpment f the glbal LEI system fr financial cunterparties. A glbal LEI fundatin where nt nly interested financial parties but als experts frm ther sectrs have an active rle and vice wuld be an effective way t start the rapid practical implementatin f the initiative, building n best practices frm all sectrs. Learning frm experience f ther industries suggests that there are benefits frm enabling all interested parties t cntribute t the LEI fundatin r bdy f equivalent legal frm. That wuld supprt the develpment f sund technical slutins and prcesses and raise the acceptability and adptin f the LEI system bth in the shrt and in the lng run. The FSB cnsequently prpses that a glbal LEI fundatin shuld be set-up t encurage wide-scale industry participatin. The prpsed LEI Implementatin Grup wuld call fr expressins f interest in participating in the preparatry wrk, wuld guide the wrk and wuld develp all necessary legal dcuments, registratins, etc. t establish the glbal LEI fundatin r bdy f equivalent legal frm. The glbal LEI fundatin set-up wuld cnsequently be undertaken with active engagement f the industry experts t expedite the prcess f the glbal LEI system launch. 44

49 As it was nted abve and discussed at the LEI wrkshp, the rganizing principle f the glbal LEI is a federated system with a plug-in architecture. This means that lcal prcedures are lcally determined, subject t verall principles and cntent cnstraints set by the centre when the lcal units plug in r jin the system. T achieve that, LOUs wuld be required t use the same netwrk card t cnnect t the glbal LEI system. That is why t ensure the successful launch and grwth f the glbal LEI system it is imprtant that ptential LOUs are actively invlved in the activities f the FSB LEI Implementatin Grup, in rder t prvide input t the design f the LEI implementatin tlkit addressing data standards, messaging standards, peratinal prcesses and sftware tls in a way t allw easy and efficient integratin f lcal systems. Recmmendatin 17 LOCAL OPERATING UNITS The LEI system shuld allw the lcal prvisin f all LEI functins which the Regulatry Oversight Cmmittee determines d nt need t be centralised. The LEI system shuld enable the use f lcal languages, rganisatin types and relatinship structures as required. Prcedures t integrate lcal systems int the glbal LEI system shuld be develped by the LEI Implementatin Grup in cnsultatin with lcal jurisdictins and ptential Lcal Operating Units (when available) in a way and manner that meets the glbal LEI system High Level Principles. The Central Operating Unit f the LEI system shuld be able t prvide supprt t Lcal Operating Unit peratins when necessary accrding t criteria and requirements established by the Regulatry Oversight Cmmittee and administered by the Central Operating Unit. Members f the Industry Advisry Panel nted that t achieve the widespread acceptance f the LEI slutin, a brad set f service prviders (such as lcal registries and numbering agencies) that culd becme LOUs shuld be included in the COU and LOU integratin mechanism develpment. Rapid take-up is best achieved by ensuring that as much functinality in relatin t integratin is available in the central system as pssible s that new jurisdictins can plug in withut creating the need fr a new system build, unless there are majr cnstraints frm lcal law and regulatin. Early prvisin f the full functinal definitin f the user interface in lcal languages and f the full functin test system fr regulatry and industry users are imprtant t ensure rapid and relatively painless take-up. The first lcal LOU is expected t be frmed in the USA t cmmence the swap data reprting as required by the U.S. Cmmdity Futures Trading Cmmissin (CFTC) final rule n swap data recrdkeeping and reprting requirements 35. It shuld be nted that n 9 March 2012 the CFTC requested submissins frm industry participants wh wish t be cnsidered fr designatin by the Cmmissin as the surce fr the CFTC Interim Cmpliance Identifiers t be used fr identificatin f swap cunterparties in swap recrdkeeping and swap data reprting under the jurisdictin f the Cmmissin beginning in mid The Cmmissin stated that the designatin will have a limited term f tw years, and be terminable n six mnths ntice if a different central utility fr the glbal LEI is chsen later thrugh the FSB 35 CFTC swap data recrdkeeping and reprting requirements, 13 January

50 prcess and becmes peratinal. The Cmmissin als nted that it plans t adpt the gvernance principles and LEI reference data requirements endrsed by the FSB 36. Recmmendatin 18 LEI DATA VALIDATION The LEI system shuld prmte the prvisin f accurate LEI reference data at the lcal level frm LEI registrants. Respnsibility fr the accuracy f reference data shuld rest with the LEI registrant, but Lcal Operating Units have respnsibility t exercise due diligence in guarding against errrs, as cnsistent with Regulatry Oversight Cmmittee standards, and t encurage necessary updating. The Central Operating Unit has respnsibility t check registratins fr glbal uniqueness and t crdinate recnciliatin by Lcal Operating Units where necessary. Accuracy shuld be ensured at the lcal level by the registered entities. Self-registratin shuld be encuraged as a best practice fr the glbal LEI system. The key bjective f the glbal LEI system is t prvide accurate up t date reference data fr each registered entity. That will require investment because as it was nted by the Industry Advisry Panel currently available infrmatin frm public surces is f mixed quality and timeliness. There are different shrt-term and lng-term slutins t address the LEI data quality. One apprach suggested by sme wrkshp participants cnstitutes s-called cmmercial third party data validatin. Thse services are fcused n crss-checking infrmatin frm a range f surces by cmpanies staff in rder t prduce cleaner data that has been scrubbed thrugh such a prcess. Typically, such cmpanies d nt accept liability r ultimate respnsibility fr data accuracy. It was nted during the wrkshp that such third party validatin services currently prvide a useful rle in imprving the quality f data. They d nt, hwever, prvide strng incentives t deliver fundamental imprvements in data quality at surce. T address the quality f the data at the surce, respnsibility fr the quality and accuracy f reference data must rest with the LEI registrants, and s achieving permanent imprvement shuld build n that respnsibility. That is best enabled at surce at a lcal level where the initial registratin is btained; as such an apprach draws n lcal expertise, legal framewrks and language, and als addresses the issue f pr data quality at the base level. The FSB cnsequently recmmends that imprvements in data accuracy shuld ultimately fcus n prviding respnsibility t the registrant fr the quality and accuracy f data that wuld then be validated at surce via the lcal registratin facility. That may entail sme upgrading f lcal registratin facilities, fr example, t imprve the timeliness f updating and reprting and the quality f data validatin. T supprt the prcess f imprving data quality, the FSB recmmends that the ROC directs the set-up f standards fr LEI validatin and LEI data quality and that the Cmmittee has the pwer t cnduct independent assessments f the applicatin f such standards. The prcess f independent validatin and verificatin f data quality and standards shuld prvide a catalyst t deliver the necessary imprvements. 36 CFTC Annunces prcess t designate the prvider f CFTC interim cmpliance identifier, 9 March

51 The ultimate respnsibility fr the accuracy f the data shuld reside with the LEI receivers. Frm the practical stand-pint the registered entity shuld have the best infrmatin abut itself n a timely basis. The challenge fr the data accuracy here is t create incentives r cmpulsin fr the entity t ensure the accuracy f its wn data in the glbal LEI system. A relevant issue fr LEI data validatin is third party registratin. Third party registratin pses a set f challenges t align the incentives f the entity and third party register vs. cst f registratin vs. legal liability fr data accuracy. At the wrkshp with private industry and during the wrk f the Expert Grup, it was nted by sme participants that third party registratin wuld risk running cunter t the bjectives f uniqueness and data quality and hence shuld nt be encuraged. Sme members f the Industry Advisry Panel nted that such third-party registratin functin shuld be limited t the ability f legal entities t utsurce the registratin fr an LEI t a third party. The respnsibility fr registratin fr an LEI and related maintenance and certificatin f the accuracy f reference data wuld mst sensibly rest with the representatives f the entity itself. The ROC shuld have the unfettered right t cnduct independent validatin and verificatin f data standards, prcesses and quality. Such prcesses culd leverage a third-party data validatin as a temprary slutin during the initial phase f the LEI system but the ROC shuld develp a specific and timely transitin plan t adjust frm the transitinal data validatin mechanisms t the permanent glbal data validatin mechanisms. Legal enfrcement fr fraud in registratin is the respnsibility f lcal authrities, but lcal registrars may act t invalidate entities assciated with such fraud. Recmmendatin 19 LEI ISSUANCE WHEN NO LOCAL REGISTRAR AVAILABLE Whenever pssible the LEI registratin shuld take place with the relevant Lcal Operating Unit. When a Lcal Operating Unit is nt available, the Regulatry Oversight Cmmittee and a lcal jurisdictin (when willing t engage) shuld agree n appraches fr lcal entities t btain LEIs. The Implementatin Grup shuld develp prpsals fr such mechanisms via: (1) establishing a mechanism f btaining LEIs thrugh ther Lcal Operating Units; (2) establishing a mechanism f btaining LEIs frm a registratin facility in the Central Operating Unit; and (3) any ther mechanisms that are apprpriate. Recmmendatin 20 SUSTAINABLE FUNDING The steady state funding f the glbal LEI system shuld be self-sustainable and reliable. The funding system shuld be based n an efficient nn-prfit cst-recvery mdel. The system shuld have tw cmpnents: a lcal discretinary charge; and a cmmn fee based n the number f registratins in each LOU t pay fr the centralised peratins in the Central Operating Unit, alngside any csts f implementing and sustaining the gvernance framewrk. Fees shuld be sufficiently mdest nt t act as a barrier t acquiring an LEI. The funding system shuld have 2 cmpnents: a lcal discretinary charge; and a cmmn fee fr each registrant t pay fr the centralised peratins in the COU, alngside any csts f 47

52 implementing and sustaining the gvernance framewrk. With respect t the ROC, the funding mechanisms, prcedures and respnsibilities shuld be clearly utlined in the Charter and be accepted by jurisdictins and authrities jining the LEI system. The LEI ROC shuld fllw the established budgeting rules and ther relevant cst related rules and ensure that the peratins f the COU are undertaken n an efficient, nn-fr-prfit, cst-recvery basis accrding t the cst-recvery criteria develped by the Implementatin Grup. The ROC shuld review budget plans, accunts and audits n an annual basis t ensure that the funding mechanism adheres t the principles f cst-recvery, and des nt present any mnply privileges, either directly r indirectly. Changes in payments t the COU frm lcal systems shuld be annunced and intrduced n a timely basis and apprved by the ROC. The ROC shuld ensure that the COU has financial resurces nt nly t perfrm current functins but als has sufficient resurces fr research and develpment, and system expansin and mdificatin as mandated by the ROC, while ensuring that the COU budget remains under tight cntrl. Reflecting the federated nature f the LEI system, funding chices at the lcal level are flexible; a lcal peratin may be viewed as being entirely a public gd and be funded by the public, r it may be seen as a gd t be prvided and funded in the marketplace with a cmpetitively determined price, r it may be seen as ne f a variety f hybrids f the tw. In all cases, it is in the interest f the ROC that lcal areas enfrce rules t reduce the threat f mnply privileges. VII. Gvernance and the rules f the game Prpsals fr the gvernance framewrk t prtect the public interest are central t the mandate frm the G-20 t the FSB. The apprach adpted was first t identify the public interests t be prtected in relatin t the intrductin f a glbal LEI system and secnd t prvide recmmendatins fr a gvernance framewrk best suited t prtecting them. Prtecting the public interest As highlighted in earlier sectins there is a need fr a strng gvernance framewrk t prtect the public gd f the glbal LEI system and t avid creating psitins where market pwers and privileges can be explited. A number f specific bjectives have been identified: Assuring pen and free access t publicly available data. In particular: Data shuld be nn-prprietary, with n bundling f services 37, r restrictins n access r redistributin; All public data shuld be readily available n a cntinuus basis, free f charge; Cnfidential data must be suitably prtected; Data and perating prcesses shuld nt be subject t any type f Intellectual Prperty restrictins, except thse recgnized as being necessary t prmte free and pen access. 37 The LEI shuld be freely and penly available and shuld nt be tied (r bundled ) t the prvisin f ther services. 48

53 Assuring pen access t entities acquiring an LEI. Entities required t, r wishing t, btain an LEI shuld be able t acquire ne under pen, and nndiscriminatry terms: Fees, where and when impsed, shuld be mdest and based n a cstrecvery basis 38 that avid mnply rents and are subject t anti-trust cnsideratins. The peratinal mdel must be efficient and avid excessive csts. Budgeting rules shuld be clear and cnsistent. N restrictins shuld be placed n the use f the LEI by the registrant. N cmpetitive advantage shuld apply t any entities invlved in the LEI system. Ensuring that the LEI system meets public sectr requirements, including: Ensuring uniqueness, accuracy, reliability, prtability and persistence f the LEI cde and reference data. Prpsing new standards that serve the public interest. Mdifying existing standards as required. Prmting the use and scpe f the LEI t expand the cllective benefit frm widespread adptin. Utilising lcal language and character sets, as well as ensuring access t the whle system in a cmmn language. The gvernance bdies shuld have the necessary pwers t enfrce applicatin f the gvernance principles, including: T take any actin deemed necessary t prtect the public interest in respect f the glbal LEI system; The ability t intrduce versight and gvernance prcesses, tailred t meet lcal and central needs; Ability t audit the parties invlved and the prcess; and appint independent auditrs; The ability t adjudicate disputes. The prpsed gvernance framewrk has fur main elements as set ut in the Chart belw: High Level Principles and Charter fr the Regulatry Oversight Cmmittee which sets ut the principles and cmmitments that establish, specify and define the gvernance f the glbal LEI system. A ROC which is charged with prtecting the public interests in the system. 38 It is pssible that sme jurisdictins culd be willing t fund the LEI issuance frm public surces and prvide LEIs t its lcal entities free f charge. 49

54 A Bard f Directrs f the COU which has respnsibility fr delivering the agreed peratinal standards. Gvernance f the LOUs, which are the lcal implementers f the system. The prpsed framewrk and specific recmmendatins with regard t the different elements are set ut in the sectin belw. Recmmendatin 21 GLOBAL REGULATORY OVERSIGHT COMMITTEE CHARTER The gvernance framewrk f the glbal LEI system shuld be develped at the internatinal level in an pen and transparent manner that supprts cllective gvernance f the glbal system. A glbal LEI Regulatry Oversight Cmmittee Charter shuld set ut the frmatin and peratins f the Regulatry Oversight Cmmittee. The glbal LEI Regulatry Oversight Cmmittee Charter shuld be prepared by the FSB LEI Implementatin Grup fr endrsement by the G- 20 at the Finance Ministers and Central Bank Gvernrs meeting in Nvember 2012 r by the FSB Plenary in Octber. As utlined earlier, the prpsed glbal ROC Charter wuld define and frame the prpsed internatinal gvernance arrangements. The ROC wuld be established n endrsement f the Charter. 50

55 Recmmendatin 22 REGULATORY OVERSIGHT COMMITTEE A Regulatry Oversight Cmmittee, as specified in the Charter, shuld have the respnsibility f uphlding the gvernance principles and versight f the glbal LEI system functining t serve the public interest. The Regulatry Oversight Cmmittee shuld be a bdy representing regulatrs and ther gvernment r supranatinal entities engaged in regulating r mnitring the financial system r markets. Membership and decisin making prcesses wuld be established by the Charter. Wherever pssible, decisins wuld be reached by cnsensus. The ROC will have respnsibility t ensure that the gvernance and peratin f the LEI system will prtect the public interest. The prpsed Charter will set ut the high level principles gverning the creatin and peratin f the ROC. Pwers and participatin arrangements are set ut in the fllwing recmmendatins. Recmmendatin 23 POWER AND AUTHORITY OF THE REGULATORY OVERSIGHT COMMITTEE The Regulatry Oversight Cmmittee has the ultimate pwer and authrity ver the glbal LEI system. Any pwer delegated t the Central Operating Unit, Lcal Operating Units and ther entities can be reversed by the Regulatry Oversight Cmmittee 39. The Regulatry Oversight Cmmittee shuld establish a frmal versight plan t ensure that its directives t the Central Operating Unit r ther parts f the system are enfrced and that the gvernance principles are upheld. The ROC will be granted the ultimate pwer ver the glbal LEI system in relatin t delivery f the public gd and prtectin f the public interest. It will take any actin deemed necessary t prtect the public interest in respect f the glbal LEI system. Specific respnsibilities assigned t the ROC include: C-rdinatin f the glbal regulatry cmmunity t versee the implementatin and peratins f the glbal LEI system in the public interest. Develpment f plans, plicies, and strategy fr the glbal LEI system. Apprval f technical and peratinal standards fr the glbal LEI system. Prmtin f the LEI as an industry standard. Apprval f business cntinuity standards fr the glbal LEI system. Apprval f budgets and the setting f fees fr the central peratins and functins f the system, and verseeing lcal arrangements. Requiring audits f the system (including appintment f external auditrs) fr financial cntrls, business practices, data quality standards r ther matters necessary t ensure the public interest. Ensuring balanced representatin by gegraphic area and ecnmic sectr f the BOD f the COU. 39 Lcal authrities may als reserve rights t be engaged in decisins n lcal registratin peratins. 51

56 Appintment f the initial BOD f the COU. Vet and remval f members f the BOD. Appintment f independent members f the BOD, serving the public interest. Apprval f plicies fr the recgnitin and terminatin f lcal registratin agencies and LOUs. Apprval f material cntracts with third parties t avid vendr dependence and t ensure high quality in services that are subcntracted. The ROC, when deemed apprpriate, may delegate the fulfillment f selected respnsibilities, as determined and agreed by the Plenary. Recmmendatin 24 PARTICIPATION IN THE REGULATORY OVERSIGHT COMMITTEE T participate in the LEI Regulatry Oversight Cmmittee, an authrity shuld indicate supprt fr the glbal LEI High Level Principles and Charter fr the Regulatry Oversight Cmmittee. Authrities may elect t be a full member f the Regulatry Oversight Cmmittee r an bserver. The rights and respnsibilities f members and bserver status participants shuld be defined in the Charter. Participatin in the ROC shall be pen t all authrities and jurisdictins that agree t the cre principles and purpses f the glbal LEI system and that are willing t subscribe t the bjectives and cmmitments specified in the high level Charter. Participatin will be at the Plenary level which is the highest decisin making bdy f the ROC. Plenary membership may be large. T help facilitate the wrk f the ROC, an Executive Cmmittee shall be appinted. The Executive Cmmittee will take the day t day wrk frward. Membership f the Executive Cmmittee shall be balanced jurisdictinally and reginally and als in terms f members functins (eg prudential regulatrs, market regulatrs, central banks, etc). Wherever pssible, decisins shall be taken by cnsensus. Where this is nt available, a vting system shall be applied, based n an allcatin specified in the Charter. The requirements, rights and respnsibilities f Observer status shall be set ut in the Charter. Recmmendatin 25 LEVERAGING INFRASTRUCTURE OF AN INTERNATIONAL FINANCIAL ORGANISATION In develping prpsals t establish the Regulatry Oversight Cmmittee fllwing agreement n the Charter, the Implementatin Grup shuld if pssible and, subject t agreement, leverage n the existing infrastructure f an internatinal financial rganisatin t initiate and stand-up the glbal LEI gvernance structure in a timely manner, utilising the experience f the internatinal rganisatin in executing internatinal initiatives. The FSB sees cnsiderable merit in drawing n the experience and infrastructure f an internatinal financial rganisatin in helping t prepare and launch the internatinal gvernance framewrk. Help and advice may be sught in a number f areas such as technical develpment and preparatins; legal wrk; and meeting lgistics. 52

57 Successful implementatin f this ptin will require the acceptance and agreement f the internatinal financial rganisatin t the prpsal. Recmmendatin 26 GOVERNING DOCUMENTS FOR THE CENTRAL OPERATING UNIT Alngside the develpment f the glbal Charter, the Implementatin Grup shuld develp legal dcuments gverning the mandate prvided by the Regulatry Oversight Cmmittee t the Central Operating Unit as well as ther legal dcuments needed t specify the full gvernance framewrk fr the glbal LEI system. A number f legal dcuments will need t be prepared alngside the Charter t set ut and specify the gvernance framewrk fr the glbal LEI system. These ptentially include the fllwing: 1. Regulatry Oversight Cmmittee by-laws r similar dcument; 2. ROC Plenary and Executive Cmmittee gverning dcuments; 3. Fundatin r bdy f equivalent legal frm agreement fr the Central Operating Unit; 4. Legal agreement between the ROC and the Central Operating Unit r similar dcument; 5. IP and ther related cpyright/trademark prtectin framewrk; 6. Infrmatin sharing agreements r similar dcuments draft; 7. Legal analysis f anti-trust laws t ensure adherence t cmpetitin and anti-trust prvisins. The prpsed FSB LEI Implementatin Grup will be charged with respnsibility fr drafting the legal dcuments alngside the high level Charter fr the ROC. The BOD f the COU will assent t and respect the terms f a legal agreement with the ROC, specifying rles, respnsibilities and rights f the respective parties fr the gvernance and versight f the glbal LEI system. Recmmendatin 27 BOARD OF DIRECTORS OF THE CENTRAL OPERATING UNIT The Central Operating Unit shall have a Bard f Directrs. The Regulatry Oversight Cmmittee has the right t vet membership f the BOD, as well as t remve members. The ROC has the right t appint independent members. The COU frms the peratinal arm f the glbal LEI system, charged with fulfilling the necessary central functins t the verall standards set by the ROC. The BOD f the COU has respnsibility fr the functining f the COU, including the peratinal integrity and implementatin and maintenance f standards specified by the ROC. The BOD shuld be ppulated by stakehlders representing a wide range f interests, such as nn-financial cmpanies as well as financial, experts with demnstrated experience f successfully intrducing and perating entity identificatin schemes in ther industries, and independent 53

58 directrs. It shuld be frmed frm membership f the prpsed glbal LEI fundatin r bdy f equivalent legal frm which will frm the COU, tgether with independent members. The initial Bard shall be appinted by the ROC nce the Cmmittee has been established and the ROC has recgnised the fundatin as the system COU. Thereafter, the ROC will vet/remve members f the Bard prpsed by the fundatin and retains the right t appint independent members 40. Recmmendatin 28 FORMATION OF THE INITIAL BOARD OF DIRECTORS OF THE CENTRAL OPERATING UNIT The Central Operating Unit s initial Bard f Directrs shuld be appinted by the Regulatry Oversight Cmmittee, taking int accunt the need fr gegraphic and sectral diversity. The Implementatin Grup shuld develp the fitness criteria, size, rle etc fr the BOD that shuld be reviewed in tw years by the Regulatry Oversight Cmmittee. It is imprtant that the BOD f the COU has a balanced representatin f stakehlder interests charged with ensuring that the COU is run efficiently and effectively as the peratinal arm f the glbal LEI in line with the standards set by the ROC. Recmmendatin 29 POWERS AND FUNCTIONS OF THE BOD OF THE CENTRAL OPERATING UNIT The Bard f Directrs f the Central Operating Unit shuld be granted pwers t direct the management and peratins f the Central Operating Unit in line with the verall standards set by the Regulatry Oversight Cmmittee. Specific respnsibilities may include: Appinting and dismissing management f the COU. Entering int and enfrcing cntracts fr services. Auditing a lcal registratin agency r LOU, r ther service prviders. Dismiss r replace service prviders as necessary. Invalidating an LEI, if apprpriate standards are nt met. Determine a payment system fr fees and services, in line with the decisins f the ROC. Recmmendatin 30 CONTINGENCY ARRANGEMENTS The Regulatry Oversight Cmmittee is respnsible fr setting and verseeing the applicatin f business cntinuity standards fr the glbal LEI system in line with best practices fr key financial infrastructure. Rules and prcedures shuld be defined that the Central Operating Unit and Lcal Operating Units must fllw in case f inslvency, bankruptcy, etc in rder t ensure cntinuity f the glbal LEI system. A prtcl 40 In this cntext independent members mean nn-industry representatives. 54

59 shuld als be develped fr maintenance f secure parallel cpies f the LEI, in a manner that respects lcal laws. The Glbal LEI system shuld be available n a cntinuus basis and shuld meet best practice standards fr business cntinuity and cntingency planning fr key financial market infrastructure. The system shuld als be able t functin in the event f inslvency and bankruptcy f a cmpnent, thrugh the identificatin and applicatin f rules and prcedures that must be fllwed in such a case. Recmmendatin 31 LEI INTELLECTUAL PROPERTY The LEI Implementatin Grup shuld cnduct analysis and prvide recmmendatins n the treatment f the LEI intellectual prperty (such as the LEI cde, sftware, reference data, any ther LEI data, peratinal prtcls, etc) accrding t the principles f pen access and the nature f the LEI system as a public gd. The bjective f this analysis shall be t ensure a regime that assures the availability in the public dmain, withut limit n use r redistributin, f LEI data, reference data, and prcesses. Any intellectual prperty rights shuld be held by, r licensed t the glbal LEI fundatin unless defined therwise by the Regulatry Oversight Cmmittee. Cpyright shuld be used t the extent pssible t prmte the free flw r cmbinatin f infrmatin frm disparate surces. Develpment f the glbal system f unique entity identifiers is likely t entail the creatin f specific intellectual prperty rights in relatin t certain key peratinal features f the system. It is imprtant that such IP rights d nt prvide privileges that act against the public interest, fr example, by prviding pwer t market prviders that ensures that the system relies n their services, r that the system cannt functin in the event that the particular vendr enters inslvency. T avid adverse incentives and t ensure cntinuity f the system and thus that the system is vendr independent, the IP rights shuld reside ultimately with the glbal LEI system, as embdied by the prpsed glbal gvernance arrangements. The LEI is deemed t be a public gd and available t the public at large fr free. LEIs may be freely reprduced, distributed, transmitted, used, mdified, built upn, r therwise explited by anyne fr any purpse, cmmercial r nn-cmmercial, and in any way, including methds that have nt yet been invented r cnceived. It will be imprtant t specify clear rules and guidelines n the use f the LEI t make sure that the principles f free and pen access are prtected and that the system is nt abused. VIII. Implementatin and next steps The FSB strngly supprts the rapid implementatin f a glbal LEI system under the framewrk set ut abve. Early delivery f the system wuld prvide manifld benefits t the glbal regulatry cmmunity and t the private sectr. This sectin sets ut an implementatin plan framewrk. The aim is t adpt the Charter f the Regulatry Oversight Cmmittee f an independent, pen, fair and transparent glbal LEI system in Nvember 2012, with the Cmmittee fully and independently functinal by March 55

60 2013. Achieving this bjective will require substantial high plitical level supprt and a strng cmmitment t prvide expert resurces t undertake the necessary wrk, as well as strng engagement and c-peratin with the wide range f the private sectr participants n the COU develpment. T advance the glbal LEI initiative int the implementatin phase, the FSB recmmends setting up an LEI Implementatin Grup with a clear mandate t launch the system n a self standing basis as sn as pssible. Tw immediate strands f wrk were identified that need t be addressed by the FSB LEI Implementatin Grup: Gvernance: Undertaking all the legal, plicy, rganisatinal and administrative wrk t establish the permanent gvernance arrangements fr the glbal LEI system as well as the necessary legal and administrative wrk t stand-up the COU; Operatins: In clse c-rdinatin with the private sectr, t undertake and versee the necessary technical wrk t develp, launch, and implement an peratinal system fr the COU f the glbal LEI, that delivers agreed technical and peratinal standards, and that enables pen access t the system and federatin f lcal peratins. A third strand is cntinued plicy develpment. Until the new gvernance arrangements are in place that will address utstanding plicy issues at that time, plicy develpment, such as wrk n crprate wnership structures and business hierarchies, will take place under the Implementatin Grup. The FSB LEI Expert Grup is an ad hc grup which has a time-limited mandate. It has nw been disbanded. If the prpsals and recmmendatins in this reprt are accepted, and the FSB is tasked t supprt the first step f the glbal LEI system implementatin, the prpsed FSB LEI Implementatin Grup will be created immediately after the G-20 Summit t take the prject frward. Althugh the Grup will build n the Expert grup, in terms f membership and skills, additinal legal expertise and additinal technical and peratinal skills will be needed, relative t the membership f the Expert Grup. The Implementatin Grup shuld cease t exist upn frmatin f the ROC, which shuld be by March at the latest. Membership f the Implementatin Grup will be pen t authrities and jurisdictins willing t supprt the develpment and implementatin f the glbal LEI system, and t supply suitable expertise t the prject. Recmmendatin 32 FSB LEI IMPLEMENTATION GROUP Subject t the G-20 supprting further wrk t launch the glbal LEI, and entrusting implementatin planning t the FSB, an FSB LEI Implementatin Grup shuld be established with a clear mandate t launch the glbal LEI system n a self- standing basis. The LEI Implementatin Grup shuld cease t exist upn frmatin f the Regulatry Oversight Cmmittee which shuld be by 31 March 2013 at the latest. 56

61 Recmmendatin 33 STRUCTURE OF THE FSB LEI IMPLEMENTATION GROUP A time-limited FSB LEI Implementatin Grup (IG) f interested and willing experts (legal, IT, and ther) frm the glbal regulatry cmmunity that includes interested parties frm the FSB LEI Expert Grup shuld be frmed t take the glbal LEI initiative frward int the glbal implementatin phase until the Regulatry Oversight Cmmittee is established. The IG shuld be led by representatives frm different gegraphic areas t reflect the glbal nature f the LEI initiative and will be supprted by the FSB Secretariat. The IG shuld develp prpsals fr the glbal LEI system stand-up as defined in the mandate belw fr review and endrsement by the FSB Plenary in Octber 2012 and, as apprpriate, final review and endrsement by G-20 Finance Ministers and Central Bank Gvernrs in Nvember Recmmendatin 34 RESPONSIBILITIES OF THE FSB LEI IMPLEMENTATION GROUP The mandate f the FSB LEI Implementatin Grup shuld be t prepare a draft glbal LEI Regulatry Oversight Cmmittee Charter, prpsals fr the establishment f the LEI Regulatry Oversight Cmmittee and related structures, develp all necessary legal dcuments fr Regulatry Oversight Cmmittee peratins, develp necessary intellectual prperty agreements and cntracts, cnduct research and prvide recmmendatins n LEI related infrmatin sharing arrangements; set up the prcess and any necessary legal dcumentatin necessary fr establishment f the Central Operating Unit and its Bard f Directrs; and set up the prcess fr establishment f necessary standards, prtcls, rules and prcedures and rganizatinal design fr the Central Operating Unit. Launch f the glbal gvernance framewrk The High Level Principles and prpsed Charter fr the ROC will frame the gvernance arrangements fr the glbal LEI system. Subject t high level supprt fr the apprach, the Charter will be develped by the Implementatin Grup fr endrsement by the FSB in Octber, as apprpriate, final sign ff and endrsement by the G-20 Finance Ministers and Central Bank Gvernrs in Nvember (see Annexes 1-4). A very prvisinal list f elements fr inclusin in such a Charter is utlined in Annex 4. Suggested initial cmpnents, include: Missin f the Regulatry Oversight Cmmittee Objectives f the Charter Cmmitments and Obligatins Membership Mandate and Respnsibilities f the Regulatry Oversight Cmmittee Functins and Pwers Structure f the ROC Decisin Making Sub Cmmittees and Advisry Panels 57

62 Secretariat and Administratin Establishment As well as preparatin f a draft Charter, the Implementatin Grup will als need t prepare all the supprting legal dcuments gverning the glbal LEI system. A preliminary list is set ut abve under recmmendatin 26. Drafts f these dcuments culd als be taken frward by the prpsed grup in cnsultatin, if necessary, with financial industry specialists and private sectr legal experts with relevant experience in thse areas. The aim will be t prepare all f the necessary legal dcumentatin t supprt the launch f the ROC by March 2013 at the latest. Recmmendatin 35 ESTABLISHMENT OF THE GLOBAL LEI SYSTEM The glbal LEI system will be established by the endrsement f the high level Charter fr the Regulatry Oversight Cmmittee by the G-20 Finance Ministers and Gvernrs in Nvember r by the FSB Plenary in Octber. Endrsement f the Charter will establish the glbal LEI system. That will include the gvernance framewrk including: the creatin f the ROC, ptentially hused in an internatinal rganisatin; and appintment f the Chair and Secretariat f the ROC. Once the ROC has been created frm jurisdictins and regulatry authrities indicating supprt fr the Charter, by March 2013 at the latest, it will have respnsibility fr the endrsement f the COU and fr the launch f the system n a self-standing basis as sn as pssible, which shuld be by the end f 2012 ideally and by March 2013 at the latest. Launch f the peratinal framewrk The principal fcus in relatin t the creatin f the COU is n the speedy develpment and implementatin f a central platfrm that will facilitate the integratin f lcal identificatin systems (whether currently existing r emerging) int a lgically central database f unique LEIs based n cnsistent standards, prtcls, prcedures, etc). The technlgy stream f the Implementatin Grup will wrk with a wide grup f private industry representatives t develp a glbal LEI system that will allw the rapid integratin f federated lcal systems int the lgically centralised database and that will appear t be seamless t end users. In ther wrds, any user will be able t access the glbal LEI system and btain the LEIs r reference data f any entity registered with the system frm acrss the glbe subject t privacy r cnfidentiality restrictins being maintained. Indeed, in the latter respect, the technlgy stream will need t ensure that the system meets the highest standards in relatin t data integrity and security, business cntinuity and access cntrls. The Implementatin Grup will wrk clsely with private industry experts t design and build an efficient system fr the Central Operating Unit. The preferred apprach is fr the ROC (initially the Implementatin Grup) t direct the creatin f a glbal LEI industry fundatin r bdy f equivalent legal frm t develp and perate the COU. Fllwing agreement t prceed with implementatin, regulatrs wuld immediately slicit interest frm a brad spectrum f private industry that includes financial cmpanies (i.e. 58

63 banks, financial intermediaries) and nn-financial cmpanies (i.e. standard setting bdies, data vendrs, cmmercial cmpanies, cnsulting cmpanies) t participate in a glbal fundatin that wuld be tasked t develp technical slutins fr the implementatin f the glbal LEI system, under the brad guidance and prpsed legal framewrk prvided by the Implementatin Grup. Participants wuld be sught n a glbal basis and frm a brad set f experience, including frm experts frm utside the financial sectr with experience f successfully intrducing entity identificatin schemes. The Implementatin grup will prvide a framewrk (utlining the main requirements and standards) and guidance fr the private sectr, enabling interested parties t wrk tgether within a fundatin framewrk t deliver pen access implementatin prcesses and slutins that will quickly develp a central plug in platfrm that lcal systems will link int. Once the ROC has been established, and the parallel legal wrk t set up the fundatin cmpleted, the ROC wuld set the eligibility criteria fr membership and wuld select the glbal fundatin t act as the COU. An initial BOD culd then be selected by the ROC frm the fundatin members (supplemented ptentially by independent members) t versee the preparatry wrk and t act as the BOD f the self-standing COU. The BOD per validatin by the ROC wuld decide fr each part f the system whether t develp and perate the cmpnent within the fundatin, r whether in sme cases t buy in services r facilities frm third party vendrs. The prvisin f seed-crn funding fr the develpment f the system wuld need early reslutin. The varius pssibilities include: private fundatin funding (preliminary discussins indicate interest n the part f such fundatins and ther nn-gvernmental rganisatins); cntributins/lan frm the public sectr r an internatinal financial institutin; public funding and/r a private sectr lan (that is the funding methd suggested by GFMA/SWIFT/DTCC). Seed-crn funding wuld be repaid ut f subsequent revenues f the system. An imprtant early task f the Implementatin Grup will be t pursue seed-crn funding ptins, fr cnsideratin and decisin by the ROC. The prpsed implementatin plan and timelines are summarised in the annexed Charts

64 Annex 5: LEI Implementatin Grup wrk plan diagram 60

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