THE "POLICY CONFORMITY FLAG" INITIATIVE IN THE GLOBAL LEI SYSTEM AIMS TO INCREASE TRANSPARENCY IN GLOBAL FINANCIAL MARKETS.
The global economy is facing growing difficulties associated with the illicit use of digital identity. The rise of cybercrime is causing financial damages worldwide and deeply undermining trust among legal entities that need to interact, particularly those operating across different countries and jurisdictions.
Furthermore, recent financial crises have underscored the importance of uniquely identifying parties involved in financial transactions and describing the interconnections between legal entities. This enables authorities and stakeholders to monitor financial risks properly. The Legal Entity Identifier (LEI), as a globally unique identifier for legal entities guaranteed by the GLEIF-operated Global LEI System, adequately serves these purposes.
The Policy Conformity Flag further enhances the effectiveness of the LEI by providing an effective opportunity to encourage and promote greater transparency in financial transactions. Data related to legal entities are made available to the public in an open, standardized, and high-quality manner, maximizing transparency and trust among market participants.
The Policy Conformity Flag is a simple and clear tool that allows all interested parties to determine which LEI records (i.e., the set of data related to an LEI code) meet certain Regulatory Oversight Committee (ROC) policies. The ROC coordinates and oversees the Global LEI System. An LEI record marked as "conforming" indicates that the following criteria are met:
- The LEI registration is up-to-date - the LEI record renewal (and thus, the review of data related to the legal entity) has been completed within the specified timeframe.
- The declaration of corporate structure data is complete - the legal entity has provided data regarding direct and ultimate parents (or has provided one of the specified reasons why such data may not be provided).
By allowing for closer monitoring of data on actors involved in transactions and promoting greater clarity on their ownership structures, legal entities with "conforming" status demonstrate their firm commitment to transparency. Moreover, their "conforming" status signals to partners and other organizations that the LEI record can be used to easily and reliably conduct due diligence checks, onboarding, and other processes involving different counterparties, thus facilitating business relationships. Conversely, an LEI record marked as "non-conforming" demonstrates that the legal entity needs to renew and/or update its LEI record.
The Policy Conformity Flag is not an indicator of data quality. In this regard, it complements the data quality management program of the Global LEI System, which assesses the technical compliance of an LEI record with standardized formats and implemented rules.
Benefits of the Policy Conformity Flag:
Legal entities are encouraged to ensure that their LEI record is "conforming," i.e., compliant with the policies established by the ROC within the Global LEI System.
- Combating financial crimes - the Policy Conformity Flag promotes greater accuracy and completeness of data, enabling more efficient sharing and associating of critical datasets, thereby improving the necessary analyses to detect and combat financial crimes.
- Market risk monitoring - the Policy Conformity Flag facilitates easier identification of interconnections between different legal entities and thus conducting the necessary analyses to monitor risks in financial markets.
- Operational process improvement - the Policy Conformity Flag enhances transparency of operational processes, offering the possibility of conducting more timely analyses and thus reducing potential issues during transactions, also lowering costs associated with data acquisition, reconciliation, and aggregation, as well as reporting costs.
It is important to highlight that an LEI record marked as "conforming" represents a simple and effective solution available to legal entities to ensure basic compliance with many international regulations.
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Access to the Policy Conformity Flag:
Legal entities are encouraged to ensure that their LEI record is "conforming," i.e., compliant with the policies established by the ROC within the Global LEI System.
- An interactive dashboard displaying the levels of LEI code compliance globally, proactively and transparently supporting data quality management in the global LEI system.
- Inclusion of this information in the LEI code search page (GLEIF Search) to allow all interested parties to easily verify whether an LEI record is "conforming," i.e., compliant with policies prescribed by the ROC.
More information on the Conformity Flag can be found on the Gleif website, click here.