Alert December 07, 2010

Newly Formed Office of Financial Research Issues Statement on Legal Entity Identification for Financial Contracts

The Office of Financial Research (“OFR”), which was established within the Department of Treasury pursuant to the Dodd-Frank Act, issued a statement of policy regarding its preference to adopt, through rulemaking, a universal standard for identifying parties to financial contracts.  The OFR is authorized to collect data to support the Financial Stability Oversight Counsel and to set standards for reporting such data.  Currently, there is no universal system for identifying the legal entities that participate in such contracts.  Without such a universal system it is difficult to track counterparties and calculate aggregate exposures.

Among other things, the OFR’s statement of policy notes that a legal entity identifier (“LEI”) should (1) be based on a standard developed and maintained by an international voluntary consensus standards board, such as the International Organization for Standardization; (2) be unique for each legally distinct entity; (3) persist over the life of an entity regardless of corporate actions or other business or structural changes; (4) include minimal information about the entity in the identifier itself; and (5) be reliable and secure against corruption or misuse.  The entity that would issue the LEIs should be organized and operated as a not-for-profit body with a formally documented governance structure that includes balanced representation by relevant stakeholders.  The entity should also be subject to supervision and regulation.  In addition, the statement of policy notes that the issuances of LEIs must be timely and non-discriminatory, and there must be a process for developing, maintaining and publishing related reference data for each LEI issued.

If a universal LEI is established to the satisfaction of the OFR by July 15, 2011, the OFR plans to issue regulations mandating the use of the standard for data reported to the OFR.  Comments on the statement of policy are due by January 31, 2011.