RBI invites bids to implement global Legal Entity Identifier system

September 16, 2013

In order to have a better control on financial transactions, such as equity and currency derivatives, the Reserve Bank of India has invited limited bids from about six entities, including depositories, depository participants and custodians, to issue unique identification codes to market participants.
The RBI will select one or two entities to assign them the responsibility of implementing a global Legal Entity Identifier (LEI) system that will uniquely identify parties to financial transactions.
What is Legal Entity Identifier (LEI) system?
LEI is a unique global identifier for each legal entity operating in the financial markets. The need to have such a system was felt after the global financial crisis of 2008. The system will work under the supervision of the RBI. LEI will aid in identification of participants in different trading, clearing and settlement systems, thus enabling aggregation of exposures and identification of linkages across markets as well as institutions, both domestic as well as global.
What are the objectives of LEI system?
The key objectives of Legal Entity Identifier (LEI) system are:

Improved risk management in firms
Better assessment of micro- and macro-prudential risks
Facilitation of orderly resolution
Containing market abuse and curbing financial fraud
Enabling higher quality and accuracy of financial data overall

How would the LEI system help?
As per Financial Stability Board, the LEI system would cut operational risks within firms by extenuating the need for tailored systems to reconcile the identification of entities and support aggregation of risk positions and financial data, which inflict substantial burdensome costs across the economy. It would also facilitate easy processing.

What is Financial Stability Board (FSB)?

FSB is an international body which was established after the 2009 G-20 London summit in April 2009 as a successor to the Financial Stability Forum. FSB work is to coordinate at the international level the work of national financial authorities and international standard-setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. The Board includes all G-20 major economies, FSF members, and the European Commission. It is headquartered in Basel, Switzerland.