LEI Global Development Strategy

　　LEI Global Development Strategy

　　（CIPS Co., Ltd.）

The construction of the global LEI system began in 2011. With the vigorous promotion of different international communities, the global LEI system is now running under a pre-designed three-tier structure. Global Legal Institution Identification Code Foundation (GLEIF) is responsible for the specific operation of the global LEI system. Xu Zaiyue, President of the Cross-border Interbank Payment System (CIPS), joined the GLEIF BOD in June 2019 and has participated in the global LEI system governance work, which has promoted the participation of the global LEI system in China and has gradually become an important component of China taking part in formulating rules of international financial system. This article introduces the LEI application expansion strategy, and presents outlook for the expected goals and the inspiration of promoting LEI in China.I.Content of GLEIS 2.0 strategy

In order to further expand the application scope of LEI and reduce registration fee, GLEIF has launched the GLEIS 2.0 strategic research project. In addition to the existing local operating system (LOU) issuing LEI and the use of LEI through relevant regulatory policies, the project proposes a new model to enrich the type of LEI issuing institutions, reducing the cost of LEI issuing and updating, not limiting data update to annual inspection and increasing the frequency of updating, in order to achieve a substantial increase in the number of LEI issuing. This strategy focuses on the following aspects:(1)Reduction of fees for LEI applications

As part of the GLEIS 2.0 strategic study, GLEIF launched the "Zero Cost" research program, which aims to expand market coverage of LEI and reduce the cost of LEI issuing. According to the progress of the current research plan, GLEIF expects to reduce the cost to $0.5 per code in 2026, and at the same time, with the increase of the number of codes issued, it can cover the operating costs of GLEIF. At present, there are two ways to reduce the fee. One is to reduce the fee to $0.5 at one time in 2021. The advantage is that the number of LEI codes can be increased rapidly, but it is expected that GLEIF will be in deficit for at least four consecutive years so it needs to raise funds from other channels to cope with this problem. The second is to reduce the cost year by year from 2021 to $0.5 in 2025. The advantage is that GLEIF can achieve financial balance, but the annual reduction of application fees will affect the enthusiasm of applicants, which may choose to delay their application time, resulting in a slowdown in the growth of LEI issuance. The specific way to reduce fees remains to be further demonstrated, and the application fee for LEI in 2020 will remain unchanged at $11 per code.(2)Enriching the type of issuing LEI institutions

GLEIF expects to include banks, industrial and commercial registration agencies and digital certificate authorization agencies in the LEI system, making them agent registration agencies or LEI issuing agencies, and explore a new model of issuing LEI.a.Bank

Banks have many kinds of customer resources and provide a wide range of services. Currently, banks lacks a unified customer reference data information and data operation model for KYC. If banks are included in the global LEI system business model, they can apply for LEI services according to their own circumstances and integrate LEI with their existing business, thus reducing the burden of LEI application institutions. It will also be easier to maintain and update LEI-related data and identify customer information efficiently. Reduce transaction costs. Specifically, GLEIF proposes the following four business models: First, banks become the registration assistant of LOU. In this model, banks collect customer material and submit them to LOU. Both banks and LOU need to check the accuracy of data in this model. Second, banks act as registration agency of LOU and are responsible for collecting and verifying the accuracy of data, while LOU is only responsible for publishing data. Third, banks act as LOU and are responsible for collecting and verifying and ultimately publishing data. Fourth, banks act as the agent registration agency of LOU and are responsible for collecting and verifying data and submitting them to GLEIF, which is responsible for publishing data. According to the survey conducted by GLEIF in the early stage, banks believe that the way of directly serving as LOU involves the risk of exposing their customer information because of the direct release of data, and it is more convenient for banks to communicate with local LOU than GLEIF, so most banks prefer to support the mode of registration assistant or registration agency of LOU.b.Authoritative Department.

GLEIF believes that through cooperation with ROC and other public departments, it can publicize the importance of LEI through authoritative channels and conduct mass registration. At present, the industrial and commercial registration institutions in some countries have been registered as LOU and begun issuing LEI, but the effect is not satisfactory. GLEIF has cooperated with them to explore new business models, such as adding LEI as their global institutional Identification code in addition to existing domestic institutional ID code, so that LEI can be linked with the authoritative information of the institution. It ensures the high quality and real-time update of institutional data. It is conducive to the country's integration into digital and global business circles and more active participation in anti-money laundering and anti-terrorist financing operations. It can also help local private and public institutions to connect more quickly and smoothly to international markets, contributing to greater transparency and benefits for governments, regulators, financial transaction participants and the general public. If this model is successful, it can be extended to more public departments and authoritative institutions.c.Digital Certificate Authority

GLEIF initiates the research of incorporating digital certificate authority into LEI issuing agencies because digital certificate issuing agencies are not uniform and data updating frequency is low. GLEIF expects to simplify digital identity authentication by combining LEI with digital certificate, as well as promote the issuance of LEI to applying agencies by digital certificate authorization agencies.(3)Continuous exploration of LEI application fields

GLEIF constantly explores the application of LEI technology in LEI system, such as exploring the application of LEI in blockchain, distributed ledger technology (DLT), digital identity authentication and other fields, and studying the regulatory measures related to entity recognition in the digital age and the application of related technologies in the field of identity recognition. At the same time, it explores the application of LEI in the field of supply chain. GLEIF is committed to expanding the application scope of LEI and making it accessible to more industries.(4)Establishment of GLEIF Regional Offices

With the aim of better implementing GLEIS 2.0 strategy, GLEIF considers vigorously promoting GLEIS 2.0 strategy globally from 2020, with the main target markets in North America, Europe, India, Singapore and Japan, and plans to set up two new offices in Jersey City and Singapore, recruit product managers and marketing personnel, and design expansion plans according to regional characteristics.II.Objectives of the GLEIS 2.0 Strategy

If the GLEIS 2.0 strategy can be implemented smoothly, GLEIF expects to achieve the phased goals of this strategy by 2026, specifically as follows:(1)The number of LEI issued has reached 20 million.

GLEIF predicts that with the implementation of various action strategies of GLEIS 2.0 strategy, the number of LEI codes issued will show significant growth from 2021, and is expected to reach 20 million by 2026, mitigating the issues of limited scope of LEI.(2)To make LEI concept globally recognized in legal person identity management. GLEIF expects that by 2026, LEI applications will cover financial derivatives, capital and money markets, banking services and other fields. It will be recognized by public and private sectors all over the world and become the recognized identification code of legal person institutions in various industries and countries.(3)Making LEI a “data connector”. GLEIF cooperates with various international institutions to map LEI to relevant international standards. For example, in cooperation with SWIFT, the bank identification code (BIC) and LEI are matched to make a mapping relationship; Mapping to the International Securities Identification Number (ISIN); Promote GLN coding mapping with GS1. By 2026, GLEIF is committed to mapping with more institutions (such as REFINITIV, Moody's) and so on, alleviating the tedious problem of customer identification requiring manual mapping of different codes.(4)Improving the quality of LEI data. GLEIF is committed to improving the data system and improving data quality. On the basis of the first level data ( "who is who"), we should improve the second level data ( "who owns who"), continue to carry out data quality testing in terms of branch duplication and name comparison of legal person institutions, reduce duplicate data and overdue data, so as to continuously improve the data quality of LEI system. GLEIF will also continue to improve the service management rules in accordance with ISO 20000 information technology service management system standards. (5)Expanding the scope of LEI application in the industry. With the GLEIS 2.0 strategy, GLEIF promotes the application of LEI to different industries. First, in the supply chain, LEI can play a role in identity authentication and regulatory identification, buyers can identify suppliers through LEI, track the progress of transactions and confirm electronic billing information; Through LEI, regulators can more easily understand the rules of business activities, clarify the relationship between trading members and deal with fraud and tax evasion. Second, in the aspect of digital economy, embedding LEI with digital signature certification in machine-readable business reports can help market participants such as trading institutions and regulators to quickly verify the source of reports; In addition, the project can be applied to business transactions or regulatory submissions by authenticating the identity of legal entities recorded on the block chain and the identity of employees in the organization through digital verifiable certificates (DVC). From the perspective of digital certificate and block chain technology solutions, GLEIF is committed to integrating standardized LEI into the digital world to simplify the identification or verification in the digital economy.III.Enlightenment to China (1)Promoting the registration mode of bank agents. By Frebruary 11th, the number of LEI codes in China is only about 16000, which is far from that in European and American countries. Major developed economies in Europe and the United States continue to strengthen the application of LEI in financial transactions, requiring financial traders to provide LEI. At present, there is a big gap between China and European and American countries in the amount of codes issued, in order to facilitate China's financial institutions and enterprises to go abroad to carry out international business, it is suggested that the number of codes issued by domestic institutions LEI should be increased as soon as possible. In the GLEIS 2.0 strategy, banks can act as the agent registration institution of LOU and directly issue codes as LOU. The bank has a large number of customers, and the current domestic accounts to achieve real-name authentication, if the bank joint local LOU to do data cleaning, can effectively ensure the quality of data. The pilot bank can be selected as the agent registration agency of LOU to issue codes in batches for its customers.(2)Enriching the types of institutions issuing LEI in China. Combining with China's business form, we can explore the feasibility of cross-border e-commerce platform as an agent registration agency. At present, with the rapid development of cross-border e-commerce, there are many large e- commerce platform merchants, if the e-commerce platform can serve as the agent registration agency of LOU to issue codes to its merchants, it will not only promote the growth of LEI issuance in China, but also facilitate Chinese enterprises to go international and meet the regulatory needs of relevant government departments at home and abroad. It can start docking with large-scale e-commerce platforms and discuss the feasibility of acting as LOU agent registration agency.(3)Promoting the work of coding mapping. Advancing the mapping work between LEI and other commercial codes in China will help LEI to become a data connector and play its role better. Regarding ISIN-LEI mapping, the international community has the United Kingdom, Germany and other 14 countries of the National Numbering Agency (NNA) to join the mapping, China has been in January 2006 to the National Financial Standardization Technical Committee Securities Sub-Committee (CSISC).Has joined ANNA on behalf of, but is not currently participating in, the ISIN-LEI mapping program. CSISC can be promoted to join this mapping plan, and the feasibility of LEI mapping with other industry codes in China can be studied.(4)Expanding the application mode of LEI in China. With the development of GLEIS 2.0 project, GLEIF has made it clear that it will strengthen cooperation with public and private sectors in the future to explore the potential application value of LEI. GLEIF has established a relationship group with Global Systemically Important Financial Institutions (GIFI) to hold regular meetings. GLEIS 2.0 strategy will introduce the participation of financial institutions, industrial and commercial registration institutions, supply chain management and digital identity authentication industry institutions to jointly explore future business models. Representatives of relevant public institutions and commercial organizations from all walks of life in China can also actively participate in the dialogue and jointly explore the new business model of LEI system. With the acceleration of China's financial reform and opening up, market access restrictions have been greatly relaxed, many foreign institutions will participate in China's inter-bank market, bond market, foreign exchange market, derivatives and other types of financial business. We need to continue to pay attention to the application mode of LEI, and intend to explore the way of collecting institutional information and identifying and authenticating institutional information with LEI code in the business scenarios of foreign institutions entering the market and Chinese institutions participating in cross-border transactions, so as to achieve regulatory equivalence and risk prevention.