Your Voice Matters: Support the LEI in the Proposed Rule of the FDTA's Joint Data Standards

It's the moment the U.S. financial data community has been waiting for. A number of key federal financial regulators have published an interagency proposal that establishes the data standards to be adopted by them all to ensure financial data interoperability across U.S. government agencies. The good news? The Legal Entity Identifier (LEI) has been proposed as a common identifier for entities. What next? GLEIF urges LEI stakeholders to support to the proposal and call for the LEI to be a data element for all entities required to report to the U.S. regulatory agencies. The 60-day comment period ends on October 21st.

A significant moment in U.S. regulatory history is approaching. It has the power to be a transformative milestone in the world of entity identity management globally and in relation to the LEI specifically.

Several U.S. regulatory agencies(1) have finally published their proposed joint rules on data standards and reporting formats as required by the Financial Data Transparency Act (FDTA). The agencies have proposed establishing the LEI as the legal entity identifier joint standard within the joint rules. This would enable the LEI to bring unprecedented standardization, transparency, and accessibility to U.S. financial data. Finally, the LEI could become the 'linchpin' of financial data - as U.S. financial regulators called for over a decade ago(2). LEI stakeholders globally have a 60-day consultation period, ending October 21st, to voice support for the proposal. GLEIF urges you to act swiftly and thanks you for your support.

What is the purpose of the FDTA?

The goal of the FDTA is to require federal financial regulatory agencies to adopt specified data standards that make information reported to them electronically searchable while enhancing transparency and accountability. Enacted on December 23rd, 2022, the FDTA requires the agencies under its scope to jointly issue rules establishing data standards for collecting information reported to each Agency by financial entities and data collected from the agencies on behalf of the Financial Stability Oversight Council. Among other requirements, the data standards must include a legal entity identifier with certain properties specified by the statute.

Following the 60-day consultation period for the joint proposed rules, which ends on October 21st and is subject to a statutory requirement that final rules determined by the agencies be approved this December, the data standards adopted by each implementing Agency through their respective Agency-specific rulemaking must take effect not later than two years after the final joint rule is promulgated. This is a very important new law that is hotly anticipated by the financial and data worlds alike due to its impact and the precedent it will set, not just in the U.S. but worldwide.

A common legal entity identifier: Why the LEI is the only choice

Among many other specifics, the FDTA explicitly requires the adoption of a common, non-proprietary, machine-readable legal entity identifier available under an open license. This comes as no surprise; U.S financial regulators have been calling for a 'standardized code that uniquely identifies entities and their legal relationships with parent companies and subsidiaries' as far back as 2011 when it was recognized in the 'linchpin' paper as an 'essential component' for the analysis of reference data concerning entities, which in turn underpins the financial data that the financial industry runs on.

The requirement of a common identifier within the FDTA reflects the critical need for a standardized entity identifier to provide a public good in the form of cheaper, more efficient, and easier analysis of financial data. Historically, such analysis has been incredibly difficult due to the plethora of proprietary entity identifiers used across U.S. federal agencies (a point backed up and quantified in 2018 within a Data Foundation and GLEIF paper titled 'Envisioning Comprehensive Entity Identification for the U.S. Federal Government'. That paper identified up to 50 distinct, incompatible entity identification systems being used by 36 U.S. federal agencies.)

So why is the LEI the only choice for all entities required to report to the agencies?

The LEI is unparalleled in meeting the FDTA's criteria for a 'common, non-proprietary, machine-readable legal entity identifier that is available under open license'. It incorporates 'standards developed and maintained by voluntary consensus standards bodies.'

• GLEIF, the guardian of the LEI, is a supranational not-for-profit organization established by the Financial Stability Board. It is overseen by the Regulatory Oversight Committee, which represents public authorities from around the globe who have come together to jointly drive forward transparency within the global financial markets.
• GLEIF makes available, for free, the Global LEI Index (the only global online source that provides open, standardized, and high-quality legal entity reference data).
• GLEIF's Statutes commit the LEI to funding based on an efficient, non-profit, cost-recovery model. The ROC is committed to an annual review of GLEIF's budget plans, accounts, and audits to ensure that the funding mechanism for the LEI adheres to cost-recovery principles and does not present any monopoly privileges.
• GLEIF's commitment to best practices and continuous improvements to its service management system has been recognized by ISO/IEC 20000-1:2018 certification, which GLEIF has held since 2019. This is an ISO service management system (SMS) standard, that specifies requirements for service providers to plan, establish, implement, operate, monitor, review, maintain and improve a SMS.
• The LEI is the only global solution providing organizations with reliable data to unambiguously identify companies and corporate structures worldwide. Robust data quality mechanisms and checks ensure that entity data within the Global LEI Index is of the highest quality.

Make your voice count: Support the LEI in the FDTA

The agencies invite comment on establishing of the LEI as the legal entity identifier data standard in the proposed joint rule. The agencies request comment on the use of the LEI to identify legal entities related to the filer of a particular report, such as a subsidiary or parent of the filer.

The agencies also invite comments on whether firms are obligated to renew LEI and corresponding legal entity reference data.

GLEIF calls on all LEI supporters, including financial institutions, data vendors, industry associations, and other interested parties, to engage with the live public consultation on the joint rules for FDTA data standards and reporting following today's publication on the Federal Register. A loud and unequivocal demonstration of industry-wide support for the LEI for all entities required to report to the agencies is encouraged to ensure that the LEI can deliver the public good benefits that the G20 and FSB intended from the outset.

The Inclusion of the LEI as the specified identifier within the data standards of the FDTA will not only benefit the U.S. financial sector. A resulting increase in LEI adoption across the U.S. will strengthen the Global LEI System worldwide, generating universally enhanced trust and transparency, which will positively impact the global economy. The decision on the specified identifier within the FDTA data standard rules has the potential to be transformative, both within and outside of the U.S.; policymakers are certainly to be applauded for a progressive decade, which has seen huge advances in data consistency and standardization across regulatory agencies. Yet now is the time for the industry to step up and engage. Collectively, we need to come full circle and ensure the FDTA delivers on making the LEI the linchpin for financial data.

The consultation period opened for 60 days on August 22nd. It will end on October 21st. The link to the consultation can be found here.

(1) Regulators within the scope of FDTA are the Federal Reserve, Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC); Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA); National Credit Union Administration (NCUA); Commodity Futures Trading Commission (CFTC), and the Department of Treasury, collectively "the Agencies."

(2) Thirteen years ago, a paper published by U.S. financial regulators called for a standardized legal entity identifier to become the linchpin of financial data. An ambition of the regulatory visionaries who authored the 'linchpin' paper was a standardized LEI that is a critical component in measuring and monitoring systemic risk.