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Professor Alistair Milne, Loughborough University, UK, in personal capacity

The use of standardised entity identifiers promises substantial cost savings to firms, both in regulatory reporting and in their internal management of client and counterparty data.

These savings will be fully achieved only if one system of entity identifiers becomes the universal global choice in all business information and in regulatory reporting applications.

I therefore fully endorse the recommendation that pre-LEIs be used for regulatory reporting in the European Union, rather than ECB MFI-IDs, BICs or a new identifier, because this is the choice that does most to move us towards a universal global system.

From this perspective creating a new EBAS specific identifier is obviously a step in the wrong direction. Similarly the use of ECB MFID-Ids, as the consultation paper notes, is not ideal, because it is regional not global. Indeed it may be worth acknowledging this is the rationale for MFI-IDs eventually being replaced by the LEIs. A key FSB and the G20 objective for the introduction of the LEI is to support monitoring of the stability of the financial system at a global level, and doing this effectively necessitates the use of global not regional identifiers.

A possible alternative would have been the use of the BIC as the universal legal identifier instead of the global LEI. This though is not a decision for the EBA alone but rather for the global regulatory community in consultation with the industry. This possibility was indeed considered in the preparatory work for the global LEI, but was rejected for good reasons, including (a) the difficulties of collecting and properly validating necessary supporting reference data if the BIC were used outside of the payments space (b) the challenge of dealing with mergers and other changes in corporate form.

It is clear that the short term additional costs of setting up and implementing the LEI as the new global entity identifier, rather than adapting BIC, are fully justified by the medium and long term benefits of a new identifier suitable for use in all business and regulatory reporting applications, and the EBA’s recommendation for the use of the global LEI in regulatory reporting is justified.
My recent research on the LEI: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2325889 may be a useful input for the cost-benefit assessment.

While not easy to quantify, I think the cost-benefit should take into account the wider impacts of using the pre-LEI on (i) overall reduction from using a universal global entity identifier in costs of data management and reporting for financial institutions, across all the jurisdictions in which they operate (ii) the broader benefits of standardised identification, beyond those arising in data management and regulatory reporting. Our paper discusses these points.
No detailed views, but some related material in my supporting letter.
MilneResponse.pdf
Alistair Milne
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