January 17, 2012 - International regulatory authorities have called for the urgent creation of a universal Legal Entity Identifier (LEI) in their final report on the OTC derivatives data that should be collected, stored and disseminated by trade repositories (TRs).

In an update to a consultation launched in August, the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (Iosco) have sought to specify minimum requirements for reporting data to a TR and for the reporting by a TR to regulators, as well as types of acceptable data formats. The report also discusses issues relating to authorities' and reporting entities' access to data, and disseminating selected OTC derivatives data to the public while taking into account any confidentiality constraints.

The creation of a network of trade repositories is seen as a vital element in regulatory efforts to promote financial stability. By collecting data centrally, TRs can provide better and more timely information on OTC derivatives and other complex financial transactions, helping to spotlight market abuse and unwind the opaque tangle of trades and relationships in the event of major counterparty defaults.

Iosco and the CPSS say that the use of a standard, universal, alphanumeric reference code - or LEI - would not only be an aid to data aggregation at the TR, but would also improve the ability of authorities to properly attribute OTC derivatives activity to a party or group.

The report highlights the technical and operational challenges to introducing a universal LEI and suggests that a phased approach to implementation may be required.

However, in noting that complete automation of back office activities and straight through processing remain elusive, "in part because of the lack of a universal identifier for legal entities", the report suggests that an element of compulsion may be required to get results.

"To date, a fundamental obstacle to efforts to implement an LEI has been that all such efforts have necessarily relied on voluntary adoption," states the report. "The lack of regulatory compulsion to create and use an LEI may have been a factor impeding efforts to create one. Many voices have suggested that some form of legal compulsion could aid moves to establish an LEI."