IGTA Journal - Winter 2020/2021

Delivered by Ingenta IP: 193.129.26.79 On: Tue, 28 Jan 2020 14:32:43 Copyright: Henry Stewart Publications Cleland and Hartsink entities are related (within large corporate groups) and where they are not, such as the US commercial bank, ‘Bank of England’ (LEI: 549300GY4NTTEM7WWB64) and the UK central bank, ‘The Governor and Company of the Bank of England’ (LEI: YUEDD7W89PH0FV8Q2S28). Domestic organisational identif iers are less eff icient forms of identif ication for cross-border payments as there is no arrangement between the different issuing authorities to ensure uniqueness, consistency of form or redundancy/error-checking between the authorities’ identif iers. Figure 2 provides an illustrative example comparing two scenarios where: ● LEIs are not included in payment mes sages; and ● LEIs are included in payment messages within designated fields in a structured for- mat.The scenario also assumes that LEIs are widely adopted, readily available and used as a unique legal identifier in the UK across sectors. Use and benefits of LEI in payments Including LEIs in payments can bring poten tial process and system uses and benef its, some of which have been outlined previ ously, for a range of market participants. For example: ● Payment system operators are better able to assess macro and micro risks where they have access to richer aggregate data on the economic activity driving payments and on payment system usage patterns.This can: – enable better understanding of the risks to the payment system allowing better decisions to be made based on a fuller identification of systemic risks; – protect and enhance financial stability and enable better understanding of the efficiency and effectiveness of financial flows between economic actors (for example, the LEI could help identify critical links/concentrations to accessing payment systems); – support more effective policy decisions by public authorities through better data on economic activity (for example, the LEI could help identify trends of differ ent industry sectors); – inform statistical research — central banks, such as the ECB, are already using the LEI data for research purposes. Currently, a variety of identifiers, including name, addresses and various domestic identifiers, are in non-standard formats, which makes system-wide anal ysis difficult. ● Payment service providers are able to use the automated processing enabled by LEIs to: – help to support efficient compliance and fraud screening, onboarding and ‘know your customer’ (KYC) checks, risk reporting and payments processing — this both reduces the need for man ual processing, and speeds up average payment times by reducing the num ber of false positives reported due to uncertainty; – facilitate anti-money laundering (AML) checks by helping to connect to shared repositories of data — this can help to address the estimated £100bn+ that is laundered in the UK each year; 19 – assist with continued provision of correspondent banking services by facil itating information-sharing in a stan dardised format, reducing the risk and cost associated with due diligence pro cesses. 20 The majority of cross-border payments involve correspondent banks and typically take two to three days to settle. Such payments will be screened at least three times (and sometimes many more). The UK government’s Eco nomic Crime Plan for 2019–22 notes that the LEI can help increase transpar ency around ownership structures across borders. 21 Page 327 - - - - - - - - - - - - IGTA eJournal | Winter 2020/21 | 43