Summertime Blues

In this space last month, I observed that Inside Reference Data was awash with legal entity identifier (LEI) issues. Maybe my mind is just on why I haven't yet made it to a beach this summer, but that wave appears to be receding, and the next one about to crash on the industry's shores is Solvency II. The European Union directive on capital adequacy and risk management for insurers is raising concerns about data quality for compliance, as we learned in our June 15 webcast.

One striking element to emerge from the webcast was in the last poll question posed to listeners, asking if they felt confident they could source all the data they need for look-through analysis, which seeks to mitigate or diminish capital charges due to exposures in asset holdings. About one-third said they were quite confident or very confident they could, but two-thirds said they were just somewhat confident or not confident at all. Although Solvency II measures don't take effect until 2014, it seems there was a bit more awareness and preparedness for the LEI at a similar time in the process.

One reason firms might feel unprepared reveals itself in a related story. Northern Trust's Andrew Melville, a participant in the webcast, says insurance clients should check that their custodians and administrators can provide Solvency II reporting data, and not assume their asset managers will handle this task. So it would appear there are still some Is to dot and Ts to cross. One of those is the Complementary Identification Code, which still must be created and defined by the European Insurance and Occupational Pensions Authority.

Although there is less about the LEI in this month's issue, there is still some news to report. The Financial Stability Board rolled out its three-tier governance structure for the identifier, the Depository Trust and Clearing Corporation unveiled its LEI utility, and firms began to be able to voice their opinion on what the LEI is starting to look like. At IRD's Paris Financial Information Summit, delegates called for greater education about the identifier, and it was suggested global banks require their clients to register for LEIs, rather than waiting for the regulation to take effect. Worldwide, IRD also reports this month on how Canadian and Asian firms plan to meet the LEI standards.

Also in our Paris conference, another interesting debate concerning regulation surfaced. As Nicholas Hamilton reports, some asset managers want to see data vendors themselves regulated and thus held accountable for problems caused by a lack of quality data. Yet other firms want it left to the market to decide whether a data provider is doing a good job or not. And it may not be practically possible to penalize providers of bad data, or expect data vendors to insure their users against risk. Is Solvency II attempting to do something like that? It's a question worth discussing—but maybe only after you get in some beach time. Hope you have, or are already having, a great summer.