LEI Smart Offers RegTech Solution for Legal Entity Identifier Requirements

Blog entry

Adoption of the Legal Entity Identifier (LEI) is soaring in response to its requirement for trade reporting under Markets in Financial Instruments Directive II (MiFID II), which takes effect on January 3, 2018. Ben Lis, founder of regtech start-up LEI Smart, will showcase the company’s LEI solution at next week’s A-Team Group RegTech Summit for Capital Markets in New York. We talked to him ahead of the event about regulatory requirements for the LEI, the challenges of getting the data right and the LEI Smart solution.

View the RegTech Summit for Capital Markets' comprehensive agenda here

Q: What does RegTech mean to you?

A: RegTech describes new software services and companies created to help financial institutions address regulatory challenges. The goal is to deliver cost-effective solutions that embody best practice.

Q: What problem do financial institutions have that you believe you can solve?

A: Financial institutions must always have the correct and current LEI data for their clients, counterparties and their own entities.

Q: Why do they have this problem?

A: Regulatory requirements mandate use of the LEI in trade reports.

Q: What regulations are of primary concern to you and your customers?

A: The primary concern right now is MiFID II with its ‘No LEI, No Trade’ requirement. Given the regulation’s scope, it’s hard to overstate the impact of this mandate. It’s driving LEI adoption in a big way.

Swaps trade reporting is also an ongoing concern. On November 1, 2017, the European Securities and Markets Authority (ESMA) began enforcing new data validation rules for European Market Infrastructure Regulation (EMIR) trade reports that include more stringent LEI validation. The US Commodity Futures Trading Commission’s (CFTC’s) recently published roadmap to high quality swaps data indicates it’s likely to follow a similar path.

In addition to these concerns, there are over 100 other regulatory uses of the LEI that apply in various jurisdictions and to various asset classes.

Q: How do you solve the LEI problem?

A: LEI Smart is designed to get LEI data right and keep it right. It does this in three ways:

Validation: LEI Smart validates existing LEI mappings of client and counterparty data. It checks that LEIs are ISO17442 compliant, registered with the required status in the global legal entity identifier system (GLEIS), and refer to the party in question. These checks are required for compliance with MiFID II and other regulations.

Smart Matching: Populating missing LEIs is a time-consuming challenge. The client name in your system is not likely to be an exact match to its legal name in the GLEIS. LEI Smart will streamline this task by using natural language processing (NLP) to find the best match.

Alerting: Once your data has been mapped and validated it must be actively maintained to remain compliant. The LEI is static, but the data it references is not. Funds get merged or closed. Ownership changes. Entities move jurisdictions and change their legal name. LEI Smart continuously monitors the GLEIS for changes like these that impact your data and proactively notifies you when they occur.

Q: What technology do you use?

A: LEI Smart is a cloud-based service hosted on Amazon Web Services (AWS). The LEI Smart server is written in the Python programming language and uses the Flask web development framework. Our database is PostgreSQL. JavaScript is used for our web console.

Python is widely used in finance and has extensive libraries for data analysis, NLP and machine learning suit us well for both current and future development. We use the customisability of PostgreSQL and its support for hierarchical queries, which will serve us well as use of LEI level 2 data, ‘who owns whom’, expands in the coming year.

Customers interact with LEI Smart via our web console and file upload. They can also use our REST API to integrate with us via their programming language of choice. LEI Smart is exceptionally easy to adopt.

Q: How do you fit into a financial institution’s architecture and data flows?

A: The two natural integration points for LEI Smart are customer onboarding and compliance. The customer onboarding team is often responsible for maintaining the client database. LEI information has become a critical component of that client database and keeping it current and correct is not an optional activity.

Compliance uses LEI Smart to validate the LEIs used in trade reporting and to monitor its firm’s own LEIs. It is not uncommon for financial institutions to have hundreds of legal entities and tracking them in one central location is a challenge.

Q: What other cool RegTech companies have you seen out there?

A: Being cool in RegTech means being effective. Being effective means delivering a practical solution to a specific regulatory challenge. That type of solution is much more likely to be produced by people who have faced the challenge.

RegTek Solutions, which provides trade reporting software and services, is a company that meets this definition of cool.

Q: Why are you taking part in A-Team’s RegTech Summit for Capital Markets event?

A: LEI Smart is a RegTech solution for capital markets so it’s a natural fit. A-Team Group events attract many leading regulatory data management practitioners.

Q: What type of people are you hoping to meet at the Summit?

A: People who can benefit from LEI Smart and who can help us make it even better. We view our customers as our collaborators.