What does your role involve within the GMEI utility?
I am executive director, Institutional Trade Processing at DTCC, overseeing DTCC’s GMEI utility. I’m responsible for the strategic direction of the utility, ensuring that it is aligned with industry standards and any upcoming regulatory requirements.
I also work closely with our clients to find solutions best suited to their legal entity identifier (LEI) needs.
What can you tell me about the end of the grace period of the LEI rule that’s been delayed by 6 months?
We saw an increase in LEI issuance from November/December 2017 through to January this year, which was to be expected because there is bound to be a peak immediately prior to a large-scale implementation.
The issuance has subsequently settled back into a business-as-usual volume with no discernible uptick in June volume.
DTCC spent the grace period working with our clients to ensure that they fully understand the LEI requirements, with a view to providing them with the best solution possible.
What challenges has the grace period brought, and what opportunities will it bring, if any?
The grace period enabled us to have further conversations with firms still needing LEIs and to educate them about the importance of the LEI system.
While we are seeing steady uptake of LEIs amongst European and US firms, some firms, most notably in Asia, are still adapting to these requirements.
Firms that are familiar with the LEI process found the second Markets in Financial Instruments Directive (MiFID II) compliance less challenging.
At the end of last year, we launched a same-day LEI service to meet the needs of clients that required shorter turnaround times for LEI issuance leading up to MiFID II’s 3 January deadline, and again up to the 3 July deadline.
How do you think the industry has managed the LEI uptake since MIFID II came into force?
Some of the larger players were already accustomed to the LEI regime—LEIs have been mandatory for over-the-counter (OTC) derivatives trade reporting in the US since 2012, and under the European Market Infrastructure Regulation (EMIR) in Europe since 2014.
MiFID II expanded the use of LEIs into different asset classes. Consequently, a number of firms had to adopt LEIs for the first time.
That said, the concept of LEIs has become increasingly familiar to financial services firms since its introduction in 2012.
With the use of LEIs in cross-border regulatory regimes, such as MiFID II, and conversations in other regions, we are seeing an alignment with the true vision of LEI as a tool to achieve the global transparency objectives as set out in the 2009 G20 mandate.
Have you seen progress in the last six months?
Yes, throughout 2017 we saw considerable progress with an increase in the uptake of LEIs.
In terms of the next phase, it is a case of firms that are either newly created or that have launched new entities that are still adapting to this regime.
We have always taken the view that firms strive for compliance and do their best to achieve it.
Now it is a matter of adjusting to the new regulations.
Do LEIs offer significant cost savings and improved cross-border data accuracy and transparency?
Undoubtedly. Under MiFID II alone, the LEI is used as a common identifier across various asset classes, as well as jurisdictions within and external to the EU.
We are also seeing adoption from some of the Asia Pacific regimes which intend to use the LEI to drive transparency.
The basic tenet of the system is a single unified identifier applied across borders, regimes and asset classes.
Harmonising around this data standard has achieved an increase in levels of transparency in financial markets.
Will the grace period given have a knock on effect concerning SFTR, which is due to go live in 2019?
It is unlikely. Principal parties of the trade that fall under the scope of SFTR should already have LEIs in place as mandated by other European regulations, however issuers of collateral and securities may initially face some challenges.
The Securities Financing Transactions Regulation (SFTR) is still evolving; its reporting obligations will be vast with more than 150 reportable fields so we are likely to see a learning curve for firms whose operational processes are still developing.
Furthermore, the IS020022 methodology for reporting, validation and access to data is yet to be published so there is a fair amount of learning to be done for SFTR.
What should firms be doing to improve their compliance with the regulation?
As far as being compliant with MiFID II, there is always work to do. However the regulation was a long time in the making and firms have invested substantial resources into their preparations to ensure compliance.
What other regulations are on the radar?
In terms of LEIs, The Hong Kong Monetary Authority has recently issued a consultation on further enhancements to the OTC derivatives regulatory regime in Hong Kong, including a proposal to mandate the use of LEIs for the reporting obligation.
Furthermore, the industry continues to work on certain aspects of EMIR directives mandating the use of LEIs.
What challenges and opportunities do you see for the rest of 2018 and moving forward to 2019?
The Regulatory Oversight Committee (ROC) is looking to add further data attributes to the global LEI system, such as information pertinent to corporate actions and additional clarifications on fund ownership related to Level 2 data.
From a DTCC perspective, we are looking to fully integrate the GMEI utility with our Institutional Trade Processing suite of products with the goal of increased operational efficiency.
Do you have any advice to give to those who missed the deadline?
Market participants need to make it a priority to apply for their LEIs as soon as possible.
Firms which transact in European markets but do not put the necessary measures in place to comply with the MiFID II LEI requirement will simply not be able to trade with European counterparties.
