Q4 2019

16 US BUSINESS NEWS / Q4 2019 , Research conduct- ed by McKinsey on behalf of the Global Legal Entity Identifier Foundation (GLEIF) has concluded that wider use of Legal Entity Identifiers (LEIs) across the global banking sector could save the industry U.S.$2-4 billion annually in client onboard- ing costs alone. With estimated total industry spend on client on- boarding equal to U.S.$40 billion per year, productivity improve- ments gained through LEI usage could generate cross-sector cost reductions of between 5-10 percent annually. LEIs are already used in capital markets globally, where regula- tors have mandated their use for reporting over-the-counter deriva- tives transactions. The research, however, makes it clear that the ability of LEIs to simplify entity identification in the digital age has the potential to unlock substan- tially more quantifiable value for banks in the near to mid-term. To realize this value, the report recommends that banks use LEIs to support all stages of the customer management lifecycle, not just in capital markets but across all banking business lines, such as trade financing, corporate banking and payments. The study also found that: • In addition to delivering im- proved efficiencies and lower Generating Cross-Sector Cost Reductions Research reveals that wide adoption of legal entity identifiers could save banks an estimated u.s.$2-4 billion per annum in client onboarding efficiencies. Report fromMcKinsey and GLEIF identifies opportunity for banks to reduce costs and improve profitability while enhancing customer experience andmitigating compliance and credit risk. costs, widespread LEI usage can generate topline benefits for banks, such as between three to seven fewer days to revenue, improved client retention and a better cus- tomer experience, thanks to streamlined processes. • Wider use of LEIs could ad- dress common ‘pain points’ in counterparty identifica- tion during client lifecycle management, such as the manual linkage of dispa- rate data and the difficulty in accessing entity legal ownership structure. • The LEI could help mitigate compliance and credit risk, as it gives banks more holistic views of clients across internal and exter- nal data sources. Stephan Wolf, GLEIF CEO, comments: “The significant potential savings for the banking industry, which are outlined in this study, should compel the sector to sit up and take notice of the near-term value that can be derived from adopting LEIs more widely. With so much to gain, there really is no excuse for banks to delay making LEIs foundational to customer lifecycle management processes across all areas of business. Compli- ance driven adoption in capital markets means that banks are already familiar with the LEI. Vol- untary expansion of LEI usage into other business banking lines is the new frontier in progressive thinking and can only lead to a win-win situation for both banks and their clients.” Gabriela Skouloudi, partner and co-head of Corporate and Investment Banking in the Amer- icas, McKinsey, comments: “The interviews surfaced four key pain points that banks experience in relation to client identification and verification: manual linking of entity data from disparate internal and external sources; difficulties in assessing entities’ legal ownership structure; limited transparency into entities’ key officers, such as authorized signatories; and poor customer experience due to multiple round trips to gather client data and documents. If a LEI was obtained at the start of onboarding, many of these challenges could be re- solved, with the net effect being expedited counterparty identifica- tion and verification processes. Know-Your-Customer compliance may also be expedited.” The research report follows other recent calls for wider LEI usage by banks, by influential industry stakeholders including the Financial Stability Board (FSB) in its recently published peer review, Thematic Review on Implementation of the Legal Entity Identifier (LEI), as well as the Payments Market Practice Group, in its Adoption of LEI in Payment Messages report. As a next step, GLEIF is evalu- ating the feasibility of changes proposed by the report, including an evolution of the Global Legal Entity Identifier System (GLEIS). GLEIF will also assess actions it can take to encourage banks to voluntarily adopt LEIs more broadly, such as enhancing the value proposition of the LEI by making it a data connector which links to the most commonly used data sources. To ensure that the future evo- lution of the Global Legal Entity Identifier System is fully informed by, and in line with, the banking sector’s requirements, GLEIF aims to conduct its assessment on the report’s proposals with maximum engagement from the global banking community. To support that objective, financial institutions are strongly encour- aged to join the GLEIF Globally Important Financial Institutions (GIFI) Relationship Group to par- ticipate in the ensuing discussion on the support needed for banks to integrate the LEI into client management processes. The GLEIF GIFI Relationship Group facilitates communication between GLEIF, banks, financial institutions and other key LEI stakeholders, making it possible for members to express their views on LEI services and for