By Chris Pickles, Head of Industry Initiatives, Global Banking & Financial Markets, BT
Projects dealing with issues of identity often result in considerable duplication of effort and cost across banks and investment firms, but this may now be reaching the point where it can no longer be sustained by financial institutions. One reason for this is that heavier regulatory requirements for capital adequacy mean that there is less money to fund projects that ultimately add to overall inefficiency.
We all know that we have multiple financial “identities” to the outside world – one everyday reflection of that is the number of different payment and ID cards that we carry in our wallets and purses. However, we’ve often got different identities even with the same service provider, largely because the service provider hasn’t been able to grasp the concept of centralising identity management internally.
This has now become a major issue not only for financial institutions but also for the regulators that monitor and supervise their activities. Regulators now want to understand the risk exposure of financial institutions to specific counter parties and clients. They understand that having a unique identifier for each and every financial institution, rather than a collection of pseudonyms that varies by institution and function, is critical to effective market regulation and the avoidance of a repeat of the market crisis like the one that began in 2008.
The proposal now from the Financial Stability Board in Basel is to have a unique identifier for every financial institution in the world, and the scope will also include their counterparties and clients that are legal entities. This initiative is being backed by regulators around the world, and will impact the IT systems of every financial institution.
Some of the related documentation on this Legal Entity Identifier initiative can be found here.