The National Association of Insurance Commissioners (NAIC) membership has decided to add the Legal Entity Identifier (LEI) tool to state insurance industry regulatory reporting in order to track entities beyond country borders in an effort to strengthen cross-border regulation after the 2008 financial crisis.
The LEI is scheduled for launch in March 2013, when new regulatory reporting requirements become effective.
Current registries are unique within countries and across different markets, which was a challenge with derivative counterparties and exposures during the financial crisis, as the NAIC stated. As such, regulators and participants from the derivatives and securities industry are heavily involved in the new system.
According to an NAIC Capital Markets Bureau report, all entities (excluding natural persons but including government organizations) engaged in financial transactions, participating in financial markets, or subject to regulation by a financial regulator, their parents, and their affiliates are eligible to obtain an LEI.
As the Federal Reserve-led background paper last year on the subject noted, passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act sparked a discussion about creating a systematic code that uniquely identifies an entity or the LEI.
The goal of the LEI project is to assign a unique 20-digit identifier to any entity that engages in financial transactions. The project determines who is eligible to have an LEI and the rules under which they are assigned. While the LEI project determines eligibility, it is up to specific financial regulators to decide when the LEI is required and how it should be used.
The LEI project is coordinated by the Financial Stability Board (FSB) and endorsed by the G-20.
The FSB strongly supports rapid implementation of the global LEI system. Early delivery of the system would advance multiple G-20 financial market initiatives and provide manifold benefits to the global regulatory community as well as to the private sector, the FSB wrote.
The FSB recommended adoption of an implementation plan with the goal of establishing an independent, open, fair and transparent global LEI system by the end of 2012 with the system independently functional by March 2013.