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 Distinct databases, even within the same organisation, can have different identifiers for the same counterparty. Where names (in character sets of dif ferent languages) are used instead of identifiers, minor variations can arise across different databases throughout the payment process chain. According to a report by McKinsey & Company and GLEIF, a bank’s database contained on average five slightly different names for the same organisation. This makes ver ification across separate systems difficult and requires manual intervention. 22 ● End users (such as importers and exporters) can use LEIs to: – assist with faster and simpler reconcilia tion and risk and liquidity management processes; – facilitate the onboarding of suppliers and ensure payments are made to the correct counterparty and to the correct legal entity within a large corporate group. PAYMENT MESSAGING AND THE LEI Initial work on LEIs in payments 23,24 As early as 2016, the Bank for International Settlements (BIS) Committee on Pay ments and Market Infrastructures (CPMI) acknowledged that the inclusion of LEI in payment messages can ensure unambigu ous identif ication of parties to payment transactions. The CPMI recommended rel evant stakeholders def ine a common market practice for how to include the LEI in the payment messages without changing the existing message structure. Additionally, as part of the migration to the future global messaging standard ISO 20022, relevant stakeholders were encouraged to consider developing dedicated codes or data items for the inclusion of the LEI in these payment messages. 25 In 2017, the SWIFT Payments Market Practice Group (PMPG), an independent body of payments subject matter experts from Asia-Pacif ic, Europe, the Middle East and Africa, and North America, responded to the CPMI recommendations and set out common market practice for the inclusion of LEI in payment messages without chang ing the structure of these messages for the optional usage of LEIs in payments. The PMPG also stated that ‘Going forward, the LEI can become a substitute for the address f ield’. 26 The LEI was introduced as an optional f ield in ISO 20022 payment messages by PMPG in 2018. In May 2019, the FSB stated that the upcoming completion of options to insert the LEI into payment messages may be an opportunity to propose an international timeline for the effective use of the LEI in payment messages. 27 In response to the FSB recommendation, in September 2019, the PMPG announced that it believes now is the appropriate time for the payment industry to begin its adop tion of the LEI. Coupled with the other changes happening around the LEI to make it cheaper and easier to obtain, the migration to ISO 20022 provides the right opportunity for the industry to move to adding the LEI into payments messages, infrastructures and processes in a low-cost, eff icient manner. 28 While not mandated globally, there is a growing industry view that LEIs should be incorporated in payment messages in ISO 20022 in a coordinated way, but that the full benef its can only be realised through wider adoption and usage of LEIs, through a mix ture of regulation and self-regulation. 29 International proposals to incorporate LEIs into major ISO 20022 implementations 30 International working groups, including the High Value Payments Plus (HVPS+) and Cross-Border Payments and Reporting Plus (CBPR+) have been set up by payment system operators to develop a harmonised international standard for implementation of ISO 20022: Page 329 - - - - - - - - - IGTA eJournal | Winter 2020/21 | 45