Four LEI Monitoring Misconceptions

By Ben Lis | September 4, 2018

LEI monitoring is the automated surveilling of the global legal entity identifier system for data updates that impact your firm. For example, when a client changes its legal name or jurisdiction, an LEI monitoring solution alerts systems and staff of the change. In my extensive discussions on LEI data, I’ve encountered four misconceptions about monitoring which I list and rebut below.

1. “LEI data is essentially static. We don’t need to monitor it.”

Not true. I recently wrote a blog post devoted to this topic. It details the types of LEI data updates and their frequency. Quick summary: LEI data isn’t as volatile as quote data, but not monitoring LEI updates is asking for trouble.

2. “Enforcement of LEI regulations is lax, so monitoring is not a priority.”

Not true. The CFTC, under the Trump administration, issued a $550,000 fine for improper LEI usage. Enforcement of MiFID II LEI regulations just began this July. Stay tuned.

3. “We load the GLEIF data on a daily basis, so we don’t need monitoring.”

Not really. Your load provides access to the most recent LEI data, which is only the first step in staying current. A monitoring solution determines what has changed from the previous day and whether those changes impact your in-house data.

For example, on August 1st, 2018, the global LEI system assigned LEI 529900SOZJTQT6LRTY88 “Vontobel Fund - Target Return Balanced” a successor LEI of 222100GN4S46CPY4QI80 due to its merger with “Vontobel Fund - Multi Asset Income.”

In this case, an LEI monitoring solution does the following:

Detects the assignment of a successor LEI to an existing LEI
Determines if your firm references the existing LEI
If it does, alerts the appropriate systems and staff of the update

If a client account uses the existing LEI, that account should be updated to use the successor LEI going forward.

To be clear, the record for the existing, now inactive, LEI (i.e., 529900SOZJTQT6LRTY88 in the above example) continues to appear in the GLEIF feed for historical reasons. If your firm isn’t using monitoring logic, your system won’t be aware of the need for an update. It also requires the logic to detect and action updates to the other business attributes in the LEI data model.

4. “We perform a quarterly audit/QA of our LEI data, so we are monitoring.”

This approach is better than ignoring LEI monitoring entirely, but it has significant deficiencies.

First, what about data that changed the second day of the quarter? It’s been incorrect for quite a while now. That’s especially problematic if it appeared in regulatory reports. Second, if you have a reasonable size entity list, you could easily be dealing with well over a thousand changes.

This approach is almost certainly a manual process involving spreadsheets, the GLEIF website and maybe a SQL query. Without a doubt, it is more costly, error-prone, and less timely than an LEI monitoring solution.

Bottom line: Firms using LEI data need a proactive monitoring solution to ensure they are utilizing current and correct data.