The Treasury Department is working on a Legal Entity Identifier system to link financial institutions, but officials say its government-wide adoption would require assurances of open, free and high-quality data available on a non-discriminatory basis.
To improve financial reporting data, an office within the Treasury Department sees benefits in the government-wide adoption of a global financial data standard known as the Legal Entity Identifier, which would help regulators track and compare data on financial institutions globally.
The LEI assigns a unique number to financial institutions that is included in transactions. This number remains the same, even if a company changes its name or location, explained Matt Reed, the chief counsel of Treasury's Office of Financial Research. He estimated there are "half a million entities that have LEIs right now."
The mission of the OFR, an independent bureau within Treasury authorized under the Dodd-Frank Act, is "focused on assuring there are existing standards that allow" gathering interoperable and useful data, said Reed.
Reed said the benefits of an LEI system include the connection of data sets, the creation a historical record of transactions, as well as a greater precision and cost reduction in tracing financial transactions.
Reed also said that some financial regulators -- the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Reserve -- already allow for the use of LEIs in certain reports. He added that "we'll see it come out even for the Treasury in the next several weeks."
However, OFR is still working on fully developing its LEI system. Reed said the system's value depends on its ability to identify entities, parent-child corporate relationships and the products attached to corporate entities.
Currently, OFR is focused on "rolling out a regime to connect parents and children with their corporate families… so we can have a complete picture of who owns who within our financial system," Reed explained. After establishing that, he said, OFR will move to "the final piece of the puzzle, who owns what."
Reed also noted that an identifier system like this that assigns unique numbers to trace products has the potential for use for non-financial data as well.
"The idea was to build this flexibly," Reed said.
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