Richard has more than 15 years of insurance investment accounting experience. He is an expert in statutory accounting and investment systems and is Clearwater’s liaison for the NAIC, NASVA, and the IASA. He has an MBA in finance from the University of Hartford and a bachelor’s in accounting from York College of Pennsylvania.
To give you a break from preparing your month-end investment schedules, let’s talk about the latest regulatory requirement for Legal Entity Identifiers (LEI). We discussed this in a recent Blanks Working Group (BWG) Update post from the NAIC Summer National Meeting in 2012. During this meeting, the BWG adopted 2012-30, which requires the addition of LEI as an electronic-only column, effective for first quarter 2013 reporting. The Charter for the Regulatory Oversight Committee (ROC) is responsible for fully launching the global LEI system. We’ve gotten numerous questions from Industry since then, and are covering the most impactful issues in this article.
First, some background. As a brief recap, LEIs were originally established to give a unique identification for organizations involved in financial transactions. This is an international agreement endorsed by the G-20 nations and overseen by the Financial Stability Board (FSB) to improve regulation and risk management for the financial industry as a whole. With LEI, regulators anticipate risk managers to increase their ability for aggregating their exposures to other entities. The benefits regulatory bodies are seeking include:
According to the FSB in a recent LEI report, this attempt for industry to standardize issuers would “mitigate the need for systems to reconcile the identification of entities and better support the aggregation of risk positions and financial data. In turn, this would reduce overall operational risks for a company.” 1
While the LEI system is already operational, the implementation will be a gradual process throughout 2013. Based on Clearwater’s research and analysis of the LEI database, many securities do not currently have a number assigned. The process of getting an LEI number will be a combination of self-registration and registration by third parties. Hence, it can take a while for the majority of companies to get an LEI number. To account for missing identifiers, the NAIC has directed companies to only include available LEI numbers and leave the field blank if the number has not yet been assigned.
The LEI number itself is a 20-digit alphanumeric code. The actual LEI number may not have significant meaning to a typical end user but it will help regulators identify the exact legal name, address, county of formation, etc. for a specific organization. Here is an example of an LEI number for Visa, Incorporated: VISA INC Class A Shares (Common Stock Cusip 92826C839) has an LEI of 549300JZ4OKEHW3DPJ59 .
Many investment accountants have been searching for a data source that provides LEI by the first quarter deadline. Being immersed in completing year-end hasn’t left much time for insurers to thoroughly identify how they will be implementing this requirement. While this sense of urgency is understandable, you should be able to rely on your investment accounting provider to monitor this change and update their solution accordingly. Your provider should have completed the following steps for your Q1 investment schedules:
Most Clearwater clients have already received their first quarter Schedule Ds, including all LEI numbers that are currently available. The inclusion of this data was the result of a well-defined process where Clearwater began contracting with data providers to obtain LEIs in the third quarter of 2012. This allowed us to prepare and test the functionality ahead of time to give clients access to this data without any issues. Clearwater clients received their LEI data without adding software, uploading, or manually entering data.
At Clearwater, we are dedicated to maintaining support and knowledge for the latest regulatory guidance changes. We’ll continue to include coverage on LEI and other investment accounting and regulatory changes as the industry continues to adopt new guidance.
For additional reading on this subject, we recommend the following sources: