June 8, 2012 - The Financial Stability Board has set out 35 recommendations for the development and implementation of a global Legal Entity Identifier (LEI) system that will uniquely identify parties to financial transactions.

The FSB, which was established to address vulnerabilities in global financial markets, says the establishment of an LEI system would be a 'building block' for achieving future financial stability and regulatory objectives.

Its much-anticipated report sets out a three-tier structure, comprising a Regulatory Oversight Committee (ROC), Central Operating Unit (COU), and Local Operating Units (LOU).

At the top of the tree, the ROC would have the ultimate responsibility for the governance of the global LEI system in the public interest and would comprise "authorities which support the core principles and purposes of the system".

The COU is the pivotal operational arm of the global LEI system with responsibility for ensuring the application of uniform global operational standards and protocols. It will be created as a legal entity in the form of a not for profit foundation "that would rely on broad industry participation, expertise and knowledge to identify and develop the most technologically, financially and legally sound methods to implement the global LEI system in line with the standards and framework defined by the ROC".

A board of directors, which may include both industry representatives and independent participants, will be elected to provide recommendations on whether to outsource any particular function or operation or develop software inhouse.

The local implementers of the global system will offer local registration, validation, maintenance and protection of reference data. It is anticipated that LOUs will build on existing local business registry or numbering services to ensure wide industry participation.

Funding for development of the system should be "self-sustaining" and not-for-profit, comprising a local discretionary charge and a common fee for support of central functions of the COU and ROC.

"The cost of obtaining an LEI should be modest and not a barrier to acquisition," states the FSB. "Access to the LEI and associated reference data will be free and open to all users, and there should be no 'bundling' of other services alongside the LEI by providers which forces users to pay directly or indirectly for the LEI."

The FSB has set a tight timeframe for implementation, with the goal of establishing an independent global LEI system by the end of 2012 and operational functionality by March 2013.

To kick things off, the FSB will set up an 'LEI Implementation group' that will undertake the necessary preparatory work to develop a central platform for the integration of local identification schemes into a centralised database of unique LEIs. An open invitation to join the LEI foundation consultative group will be made following the presentation of the report at the forthcoming G20 meeting in Mexico.

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