The securities industry is pushing the European Securities and Markets Authority (ESMA) for clarity on a potential alternative to the global Legal Entity Identifier (LEI) solution ahead of the implementation of the European Market Infrastructure Regulation (EMIR) this summer. Global Custodian understands that a global solution, which the industry expected to be in place in Europe by March, may likely not be ready in time for the effective date of EMIR.
ESMA, the technical standards authority for implementing EMIR standards, had made reference to the use of LEIs in its original draft text for EMIR. It had also been expecting a global LEI solution from the Financial Stability Board after the global regulatory group that had been running with this under the FSB indicated the solution would be in place by March 2013.
Industry sources say there is likely to be a governance framework for a global LEI solution in Europe, including a regulatory oversight group, but not a fully-fledged global LEI data base, fully fledged processes, a network of issuing authorities, operating unit, or foundation by the time EMIR is implemented. There are so many things that need to happen thats left EMIR high and dry, said a source close to the matter. The likely delay leaves ESMA with a challenge: do they mandate the FSBs preapproved LEI solution, which includes the CC code that firms issue to meet the CFTC reporting requirements under Dodd Frank, or do they look at another short term alternative. A lot of firms have these CC codes but there is no clarification from ESMA as yet on whether or not these CFTC InterimCompliant Identifier (CICI) codes can be used in Europe.
Industry lobby groups are understood to be working with ESMA on this grey area. There have been a number of alternatives mooted over time, said the source. Theres been talk of the Swift BIC code but they are not fit for purpose, and they are not designed for the purpose that we have in mind here. There are perfectly good identifiers of the CICI code, there just needs to be some clarity around it.
ESMA may be looking for a more European alternative to using the same codes that the CFTC are already using which goes against the whole principle that there could be a global LEI for each company.
Of course we have to wait for the global LEI system to be built first but when its there the codes will transition exactly as they are. So thats good news for firms who have the CICI codes. We know that they are valid for LEIs. What we also need to know and understand is confirmation from ESMA that they can be used not just for reporting from the US from the CFTC but they are equally viable for use in Europe.
ESMA is expected to issue an FAQ on EMIR on Feb. 22. In the meantime industry groups are meeting ESMA to ensure that CICI codes that are valid LEIs can be used
Groups such as SIFMA and AFME are actively driving the CICI code as a global LEI solution. Theres good industry support at the moment increasingly for the buyside because the volumes of entities could be substantially large,” said the source. “Theres a lot that needs to be done because have separate CICI codes for Europe and the US could spell a lot of problems for firms.
(JDC)