RBI chooses CCIL to issue Unique Identity Codes in Financial Transactions
The RBI has chosen the Clearing Corporation of India Ltd. (CCIL) to act as a Local Operating Unit (LOU) for issuing internationally compatible Legal Entity Identifiers (LEIs) in India.
What is Legal Entity Identifier (LEI)?
The LEI is a 20-character unique identity code assigned to entities which are parties to a financial transaction. The assigning of LEI is part of Global LEI System (GLEIS) programme to which India is a party.
What would be the work of CCIL as an LOU?
As an LOU, CCIL will issue unique identifier codes to all eligible and willing legal entities taking part in financial markets across the world on a non-profit cost recovery basis. After the recognition of CCIL by the Regulatory Oversight Committee of the GLEIS, codes issued by it will be accepted globally. Once the infrastructure in this regard is established, the use of the LEI numbers is expected to be mandated for OTC derivative transactions and large borrowers (legal entities) in a phased manner. The functioning of CCIL as an LOU will be under the regulation and supervision of the RBI. Recently, the RBI had designated CCIL as a critical Financial Market Infrastructure (FMI) for oversight considering its systemic importance in financial markets regulated by the Reserve Bank. It was also granted the status of a Qualified Central Counterparty (QCCP).
What is Global LEI System (GLEIS)?
After the global economic crisis of 2008 jolted the world economy, countries across the globe felt the absence of a common, accurate and sufficiently comprehensive identification system for parties undertaking financial transactions. This deficiency led to the origin of the idea of setting up of a Global LEI System (GLEIS). Regulators world over recognized the significance of the LEI as a key component of necessary improvements in financial data systems. Consequently, the G20 at the Cannes Summit held in November 2011, endorsed the development and maintenance of a GLEIS and tasked the Financial Stability Board (FSB) to spearhead the co-ordination of international regulatory work and to deliver concrete recommendations on the system. India’s RBI joined ROC of the GLEIS in 2013 and as a member of FSB, the RBI, is committed to the adoption and implementation best international practices.
FSB has designed the framework for the GLEIS. It is as follows:
- A Regulatory Oversight Committee (ROC): Responsible for the governance of the GLEIS and presently includes members and observers from more than 70 authorities across the globe;
- A Central Operating Unit (COU): Key operational arm of the GLEIS
- Local Operating Units (LOUs): Primary interface for entities desiring to register for the LEI system.
How would GLEIS help?
GLEIS will introduce a single global system for uniquely identifying parties to financial transactions. The system would provide myriad benefits as a valuable ‘building block’ to contribute to and support many financial stability objectives, including:
- Improved risk management in firms
- Better assessment of micro and macro-prudential risks
- Facilitation of orderly resolution
- Curbing market abuse
- Checking financial fraud
- Facilitating higher quality and accuracy of financial data.
What is the current status of GLEIS?
At present, the GLEIS is being developed and while many operational issues, particularly regarding its cross border compatibility are being worked out upon, LOUs in quite a few countries have already become operational. Considering this, the identifiers currently assigned by LOUs are referred to as pre-LEIs and LOUs themselves are called pre-LOUs.
Categories: Science and Technology Current Affairs - 2017