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In Focus Risk

One of the themes that can come up

repeatedly in our engagement is that the burden of identification is heavy – both for banks and businesses. All but the very simplest of business

transactions involve a chain of institutions in the financial network. Across this chain there can be many

unique ways of identifying a business, and because of that, there are manual checks and reconciliation processes involved every step of the way. A single, universally recognised identifier

could dramatically improve the speed and efficiency of identification, by cutting out this manual process at every stage. Which brings us back to the legal-entity

identifier (LEI). The LEI has its origins in the post-crisis financial market reforms pioneered by the international policy-setting and regulatory community, serving as a means to better aggregate and monitor exposures (amongst many other goods) ultimately helping us preserve financial stability. The LEI has particular features: it is a unique identifier, requires annual verification, carries useful information about company structure, and is a globally recognised ISO standard. The bank believes that it has all the

right ingredients to deliver much wider benefits for end users – raising efficiency, competition and productivity. Beyond the financial sector LEIs have the potential to be a transformative building block for the real economy. With the LEI as a critical building block,

technology holds the promise of delivering efficiencies for end users of the financial system. Rapid identification will enable efficient know-your-customer (KYC) and on-boarding processes. Given the complexities of cross-border

transactions, it could unlock substantial efficiencies for importers and exporters. And, it could one day enable a business to build up its own credit data file and use it to shop around for the best products, much like we do as individuals. Our work suggests a widely recognised

and unique digital identifier for all businesses is foundational to delivering that future vision. Because of the benefits the bank sees in LEIs, our consultation response outlined

February 2019

that we will make them a mandatory feature of transactions between financial institutions in CHAPS. But in order to unlock the LEI’s full potential we need to encourage the adoption of LEIs amongst all those who use payment messages, not just within the financial services industry, but in all sectors of the economy, including corporates. The opportunity of the infrastructure

upgrade as part of RTGS Renewal, and similar opportunities in future, could provide the appropriate levers to encourage this broader take up of LEIs – to maximise the benefits of this public good.

Looking forward The need for close private and public-sector collaboration is why we sought your feedback through our consultation. And, it is why we, with Pay.UK, have

announced the Standards Advisory Panel, a senior group providing strategic advice on

the adoption of new payments standards in the UK. This group will bring vital private sector expertise into the Bank and Pay.UK’s work to ensure consistent adoption of standards including ISO 20022, the CCM, and the wider adoption of LEIs. The cutover for moving to ISO 20022

messaging for sending and receiving CHAPS payments is planned to occur in 2022. This will be on a like-for-like basis with the current messaging standard, but we will then introduce enhanced data into CHAPS payment messages, including LEIs for messages in financial institutions in 2023. And, as I mentioned earlier, we will then look at further enhancements, including a broader inclusion of LEIs in payment messages, over later years. With the renewal of RTGS, the wider

implementation of ISO 20022 messaging standards for payments and the inclusion of LEIs in credit messages, the bank is committed to changes which will have a positive impact for users of payment services. But we all need to keep up the momentum

With the renewal of RTGS, the wider implementation of ISO 20022 messaging standards for payments and the inclusion of LEIs in credit messages, the bank is committed to changes which will have a positive impact for users of payment services

and energy to deliver this critical change – a foundational change which will help future proof UK payment systems; deliver the new products and services which your customers are asking for; and support and contribute to the wider economic transformation being brought about by the data revolution. CCR

Edited from a speech given at the ISO 20022 Conference, Bank of England


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