World Council: LEIs could have value, shouldn’t be mandatory
While World Council of Credit Unions does not support a requirement for credit unions to obtain “Legal Entity Identifiers” (LEIs) it sees some potential value in encouraging increased use of this system, the World Council wrote to the Financial Stability Board (FSB).
The World Council’s letter was sent in response to a thematic peer review on implementation of LEIs. The FSB first established the LEI system in 2012. The World Council previously engaged with the FSB on LEIs in 2012, urging the board not to mandate use of the system for credit unions.
Since then credit unions have only been required to obtain an LEI if it engaged in derivatives trades such as interest rate swaps and caps. The board has now proposed to potentially expand the use of LEIs to other areas such as payments, Bank Secrecy Act customer due diligence, and credit reporting.
“We do not support mandating that all depository institutions obtain LEIs at this time because updating a credit union’s or bank’s back-office computer systems to accommodate a new identification number can be very expensive, in addition to the costs associated with any applicable LEI-related registration fees,” the letter reads.
“We do see value, however, in the FSB encouraging increased use of the LEI in several compliance areas, in order to reduce potential redundancy and confusion in terms of identification of financial institution counterparties, while also respecting smaller institutions’ freedom of choice not to register for an LEI if doing so would be unreasonably expensive, so long as they respect credit unions’ freedom of choice not to register for one of these numbers if doing so would be unreasonably expensive,” it adds.
The World Council believes that giving financial institutions the option to use the LEI could help reduce regulatory burdens in certain areas, including:
- Improving beneficial ownership information, when the customer already possesses an LEI;
- Helping identify payments beneficiaries, originators and intermediaries, when those parties possess LEIs;
- Helping identify reporting entities and counterparties in credit registries, if the entities have an LEI;
- To serve as an identifier in other situations where a legal entity identification would be needed.
The FSB is based in Basel, Switzerland, and monitors and makes recommendations about the global financial system. The United States is represented on the board by the Treasury, Federal Reserve board of governors and the Securities and Exchange Commission.