August is a great month to step back, chill out and relax with a good read. And what could be better than a summary of our recent webinar series featuring some of the leading minds in LEI and ISIN implementation including Jeff Braswell, one of the founding board members of GLEIF.
This three-part series takes a fresh look at the evolving role of LEI, ISIN and Corporate Actions, with a focus on the sea-change taking place as a result of the COVID-19 pandemic. Our lineup of thought leaders and influencers have decades of experience defining and executing global financial policies, as well as in administering the systems that apply those policies in the real world. We’re confident you will gain insight and fresh ideas from this series as you contemplate the next wave of digital transformation at your organization.
Throughout the series a number of points were raised and reinforced:
- The LEI and ISIN infrastructure, while not perfect, represents one of the greatest opportunities to reduce risk in any multi-party business transaction - from finance and insurance to supply chain to commercial properties or even carbon credits.
- We have not yet reached critical mass with LEI and ISIN issuance. While adoption is strong and growing, there are hundreds of millions of entities and instruments not yet registered.
- In order to become a globally-actionable platform, governments and the private sector need to work together to drive adoption - including reducing or removing registration fees, batch-updating legacy records, and incorporating LEIs and ISINs into origination and onboarding activities.
- Technology platforms like pTools play a critical role in all of the above by automating manual processes and eliminating data “silos” - in turn increasing adoption and use. As needs become more sophisticated and real time transactions gain steam, advanced technology like blockchain, natural language processing and AI will play an even greater role.
If this summary has whetted your appetite and you’re ready to learn more, then - keep reading!
- Jeff Braswell - Founding Partner and CEO, Tahoe Blue; Founding Board Member, Chair of Technology, Operations and Standards Committee, GLEIF
- Allan Grody - President and founder of financial industry joint venture development company Financial InterGroup Holdings Ltd; and strategy, research and acquisition consultancy Financial InterGroup Advisors.
- Francis Gross - Senior Advisor, European Central Bank
- Kevin Bourne - Managing Director, Head of Sustainable Finance, IHS Markit
- Mark Scully- Former CIO and Head of Information Technology, Irish Stock Exchange/Euronext
- Joseph Gavin - Head of Financial Services Group, ByrneWallace; Former General Counsel, Central Bank of Ireland
- Tom Skinner - Founder and Managing Director, pTools Ltd.
Session 1 Summary:
Jeff Braswell, Allan Grody and Francis Gross engage in an animated exchange on the role of central government v. private industry in the expansion and adoption of LEI and ISIN global standards.
Tom Skinner builds on the perspective laid out by Francis, wherein a technology-driven, standards based approach to issuance and management provides both a short-term workaround for the myriad of standards used around the world, and a platform for future enhancements. With the use of open APIs, NLP and AI the present and future states can be aligned.
View the webinar
Session 2 Summary:
Looking beyond financial services, Kevin Bourne, Jeff Braswell and Mark Scully dig into opportunities that ISIN and LEI open up in supply chain, commercial property identification and even carbon offsets.
The second half of the webinar focuses on the challenge and opportunity of centralizing v. regionalized ISIN issuance, referencing LEIs as model for success.
View the webinar
Session 3 Summary:
This closing session is jam-packed full of insight from Joseph Gavin, Allan Grody, Mark Scully and Tom Skinner on a breadth of topics. First up: on the role of blockchain and Distributed Ledger Technology (DLT) in issuance, receipting, and real-time validation and analysis across LEIs, ISINs, and Corporate Announcements. Following this the panel discusses the impact of remote working on LEI and ISIN transactions, with a focus on risk and efficiency.
The panel closes out with a discussion on the role of ESMA on LEIs and entity definitions, specifically in annual reports.
View the webinar
Want even more? Below we’ve shared some of our favorite snippets and excerpts. The full webinar transcripts are available as well - just send us a message!
Rather than putting a pTools “spin” on the content, we want to share the unfiltered perspectives of the panelists with you. Here then are some of our favorite excerpts, categorized by topic. Feel free to connect with any of the speakers on LinkedIn, or reach out to pTools and we can broker an introduction for you. After you get back from your holiday break, of course!
What’s the background and value of LEIs, ISINs and Corporate Announcements as a unified set of data? How did it come about and what are the key challenges you set out to fix?
The goal is to enable digital commerce and to know who you can trust in a global economy on the Internet with the identification of those entities that are actually doing financial transactions.
(On the genesis of GLEIF and the LEI system)
When I started this idea in 2006 I was absolutely shocked to see the state of data in the whole financial system - to see that behind the fine suits and the nice facades of the towers there is actually hell in terms of data. It's dirty, just dirty and not well done. I thought the whole thing from the start as every legal entity that moves and that is capable of entering into a contract must be identified and in a globally standardized way. And this must be global, it must be universal - meaning every legal entity in every country - and real time. Nothing short of this that will work. All the rest is old thinking anchored in legacy culture of pre-digital days.
When you look at the countries that have most fully adopted LEI, you see, it's the US, Canada and Europe. The full adoption of LEIs through regulation in these jurisdictions has solved two of the greatest problems that emerged out of the global financial crisis. One was the inability to analyze large exposures in the banking sector. And the second was the inability to analyze growth leverage created by derivatives contracts and particularly credit default swaps. I think in those two problems the use of LEIs has substantially resolved those problems such that we’re not likely to see a repeat of the GFC for some time in those jurisdictions.
We have built a machine under our feet that is a hyper organism of hundreds of millions of computers that are connected, that exchange data. Machines that we have lost control of and it's irresponsible so we need to fix that! And the beginning of it is to put a label on every object, like every car has a number plate.
If a company is in multi-currency transactions, dealing in multiple territories, and looking for credit and credibility in those territories, i think LEIs are really fantastic for that level of business.
If you see the economy as a network of contracts that connects the global population of parties you can only work with someone if he is a legally recognized party. So all objects that are legally real should be registered somewhere and if they're not yet well it's time to fix it.
The Future Landscape
What changes can we anticipate in the way LEIs and ISINs are issued, managed and used? What challenges must be overcome in order to get there? What new technologies will power this future landscape?
With the global LEI system we are building a digital response to all the disruptions we see and to the needs of all businesses. We will need to convince the governments that they need to upgrade the identity creation processes so that they are effective in the digital age.
About 10 years ago SWIFT and DTCC had proposed a template format for corporate Issuers to follow corporate actions from their initial sources through to the entire process. They could not get the corporate issuers to agree because they did not see a benefit. That's still a project that needs to be done if we're ever going to get the maintenance of Legal Entity Identifiers up to speed to where real time systems can use it.
We need to go to another business model, connecting the LEI system straight to the source of official identity - in real time. That means that the data for the LEI will come straight from the business register. An LEI will be issued at the business register and the updating should be done in real time.
(On the need for better integration and technology for LEI)
Corporate actions are in fact, the maintenance function of the LEI. And to not have thought that through in the beginning stages of seeding of the global legal entity identification system was an omission that's come back to be of great concern going forward.
Identity is factual - in the sense that it is created by law so no one will dispute that, worldwide. Beyond the factual - that is, the skinny set of information about an entity - there's plenty of stuff that comes in various shapes and sizes. And there, technologies like artificial intelligence and natural language processing become very useful and important.
(On the subject of Registration Agents)
The registration agent was introduced to feed users into the system initially. The more recent development is in fact to extend that concept and eliminate the redundant cost of LEI issuance by using the KYC process - which is a fairly rigorous process worldwide because of AML and CFT - at the financial point of origination of accounts to be essentially registration agents that would issue an LEI for little or no cost which would eliminate the barrier to go from say 2 million to 20 million LEIs.
As much as I appreciate the desire to have all governments mandate all things for all people I don't think we can count on the voluntary participation of all governments of the world. I believe it's a collaboration of multiple dimensions in which the private sector and the public sector will cooperate in the best ways they can to achieve the goal.
(On DLT and remote work)
The Global Legal Entity Identification Foundation (GLEIF) has been not only piloting, but actually using a trusted certification of the LEI, the purpose of which is to demonstrate that you can definitively trust a certified LEI. That's very significant to the whole discussion we're having about working from home.
(On the technological and operational impact of remote work on LEI, ISIN and Corporate Announcements)
The processes of validating the buyer and the seller in a substantial trade are growing, and the risk associated with fraud and bad actors is growing. You need to do more than assure yourself that a potential buyer or seller has an LEI. But if they did have an LEI, you have some increased level of assurance or surety that they are legitimate actors.
(On the technological and operational impact of remote work)
We're now in a new norm. The reliance - and I think permanent reliance - on technology through our experience of COVID has demonstrated that services can continue on a fully functional basis, working remotely.
(On the potential of blockchain and distributed ledger technology/DLT for LEI issuance and management)
Given the state of the art of the distributed ledger technology within the blockchain concept, this is an ideal application for distributed ledger technology. The capability of DLT is well described as being up to the ability to support 35 LOUs in a distributed ledger. What we're suggesting is that over time, each LOU in conjunction with an overreaching business plan...could eliminate their own legacy systems that do this. (This would) reduce costs and give the ability to not only supply this information as it is managed and accepted, but also that it can be done in close to real time.
(On the potential of DLT)
The DLT process, in principle also provides a transparent solution in which anyone who has access to that can see the leaf but they can also see the history of the of the twig and the branch and the roots and the trunk and everything else that goes with it.
(On the potential and challenges of ESMA)
The big driver in Europe in terms of financial reform is ESMA, EBA and EIOPA. I think the single biggest market reform is the MIFID II directive and the level two level three regulations, which are very extensive. The requirement for reporting and the implementation of EMIR for accurately identifying counterparties goes to hugely enhanced risk analysis in the financial sector.
(On the potential and challenges of ESMA)
The ESMAs challenge is not so much to publish the format, but the whole issue is feet to the fire if they don't use an LEI. That will make the difference between a regulation that has teeth, and a failure of the LEI.
All the webinars are posted on the pTools YouTube Channel in case you missed any:
Part 1 - How LEI, ISIN and Corporate Actions Are Being Transformed by Technology
Part 2 - Leveraging LEI and ISIN Data in Financial Services and Supply Chain Management
Part 3 - Leveraging Distributed Ledger and Blockchain in LEI and ISIN