By Ben Lis | January 6, 2020
If you are responsible for managing your firm’s legal entity data, make a new year’s resolution to get an LEI audit in 2020. This post is a quick take on what an LEI audit is and why all firms can benefit from one.
An LEI audit is an annual checkup for your data Just like a yearly physical checkup provides insights into your health, an LEI audit offers insights into the health (i.e., accuracy and completeness) of your legal entity data. Like a checkup, it consists of diagnostic tests and procedures to determine if everything’s okay with your data. An LEI audit not only detects problems, but it also corrects them.
Why all firms can benefit from an LEI audit
The 20 character LEI ID is static, but the data it references changes. Events such as a:
- merger, acquisition, bankruptcy or dissolution
- legal name change
- address or jurisdiction change
- overdue renewals of your firm’s own LEIs
result in critical LEI data updates. Not updating your in-house data to reflect these changes will lead to operational errors and the submission of inaccurate transaction reports to regulators.
What a difference a year makes
The rate of change in LEI data generally runs a bit higher than 10% per year. That is, over the course of a year, about 1 out of 10 LEIs experiences a meaningful data change.
So, if you have an LEI list of customers and counterparties that contains 100,000 entries, you should expect over 10,000 updates over the course of a year. Even if you have sophisticated data management procedures to keep your data in sync with the latest changes, it’s still easy to miss some updates.
The cost of not detecting or dealing with issues
A firm has already received a fine of $550,000 for submitting incorrect LEIs in their regulatory reports. Don’t let this happen to your firm.
Although they may be the most stomach-churning and easily quantifiable, compliance issues and regulatory fines aren’t the only costs. A 2019 McKinsey report estimated that the global banking sector could save over $2 billion annually in client onboarding by more effective LEI use.
You might take that figure with a grain of salt, but it is undoubtedly the case that an ounce of prevention is worth more than a pound of cure. An LEI audit typically pays for itself several times over and gives you one less thing to worry about.