LEI Advocates Must Target Critical Mass

The introduction of new regulations is a costly and complex business, but for vendors it also presents opportunities. As governments continue to respond to the faults highlighted by the global financial crisis, technology and data vendors are updating existing products and launching new ones to help their customers comply with new regulations.

Need to understand which trades are in scope for a new tax? There is a vendor who can help you with that. Looking for the most effective way to connect to a trade repository? Step right this way, I know just the solution for you. Struggling to assemble all the data needed for new regulatory reports? Don't worry about it, this new product will do the trick. And so on.

However, not all regions have been affected equally by the financial crisis and, as a result, not all regulators have rushed back to the drawing board with the same urgency.

At the Tokyo Financial Information Summit last week, delegates observed that Asia-Pacific is not in the midst of a regulatory overhaul on the scale of the one taking place in Europe and the US. One vendor said lack of regulatory change in the region has made it difficult to sell solutions there that are now considered essential ingredients for compliance in the US and Europe.

A tough trading environment for vendors is unlikely to raise much sympathy from other parts of the industry. However, countries' differing levels of exposure to the financial crisis and, therefore, appetite for change have more serious consequences too, particularly when it comes to the success of global regulatory projects such as the introduction of the legal entity identifier (LEI).

Japan has so far assumed an important role in the LEI project, through the appointment of Jun Mizuguchi of the Japanese Financial Services Agency as vice-chair of the LEI's Regulatory Oversight Committee. However, market participants have raised doubts about the Japanese authorities' enthusiasm for mandating the LEI and have pointed out that existing mechanisms for entity identification in the country are considered to function well.

However, even if no compelling reasons for adopting the LEI can be found internally in Japan, they will surely become quickly apparent when the new identifier starts to be widely used by other major economies. If Japan waits too long before adopting the LEI, its financial firms will be forced to maintain two identification systems – one for trading domestically and another for trading in jurisdictions that have adopted the LEI. This would be complex, costly and unpopular, and would no doubt force Japan to adopt the identifier.

All of which serves to remind those countries with the greatest interest in the LEI that the best way to increase adoption is to lead by example. The sooner a critical mass can be reached, the better.