As part of the Financial Data Transparency Act of 2022 (“FDTA”),[1] Congress directed the Commission and other financial regulatory agencies to jointly propose data standards for (1) certain collections of information reported to each agency by financial entities and (2) the data collected from the agencies on behalf of the Financial Stability Oversight Council.[2]
Today, the Commission is proposing joint standards with the other agencies.[3] One part of the proposal establishes International Organization for Standardization (ISO) 17442-1:2020, Financial Services – Legal Entity Identifier (“LEI”), as the joint standard for the legal entity identifier. While LEI satisfies the FDTA’s requirements for a joint data standard, I have concerns were the Commission[4] and other agencies to ultimately mandate the exclusive use of LEI from a specific organization.
LEI is managed by the Global Legal Entity Identifier Foundation (“GLEIF”) and issued through “local operating units” (“LOUs”). Although GLEIF is overseen by the Regulatory Oversight Committee, of which the Commission is a member, neither the committee nor any LOU is a federal or state regulator. Entities must pay a fee to an LOU both to initially obtain an LEI and to renew the LEI annually.
While the fee may be de minimis to some entities, mandating payments to a private third party as a condition to satisfying legal requirements raises significant concerns – especially when such fees are not subject to approval by Congress or the Commission. If a company wants to raise capital by filing a registration statement, then it needs to first purchase an LEI from a third party.[5] If a school or water district seeks to issue tax-exempt bonds to pay for infrastructure, then it needs to purchase an LEI before it can submit materials to the Municipal Securities Rulemaking Board.[6]
The FDTA amends section 124(c)(1)(A) of the Financial Stability Act to require the joint standards to include “a common nonproprietary legal entity identifier that is available under an open license.”[7] The term “open license” means a legal guarantee that a data asset is made available at no cost to the public and with no restrictions on copying, publishing, distributing, transmitting, citing, or adapting such asset.[8]
Given these concerns, the Commission should consider alternatives to requiring regulated entities to pay for something – such as an LEI – if free alternatives, such as the Central Index Key (CIK) used to make EDGAR filings with the Commission[9] or the file number issued by the Delaware Department of State’s Division of Corporations,[10] are available and may also satisfy the FDTA’s data standard requirements. One option, consistent with certain of the Commission’s forms,[11] is to require an entity to use and disclose its LEI only if that entity has already obtained one for other purposes.
I look forward to reviewing the public comments from investors and market participants on the LEI requirement and other aspects of the proposal. In receiving feedback, I am particularly interested in whether the joint data standards being proposed, including LEI, can be obtained or used by non-traditional business organizations that exist today or that may exist in the future, such as those in the crypto and digital assets industry.
Because of the Congressional mandate to undertake this rulemaking, I will support the joint proposal. I thank staff from across the Commission who worked on this proposal, and I would especially like to recognize the staff of the Office of the Chief Data Officer, the Division of Corporation Finance, and the Division of Economic and Risk Analysis for their involvement and engagement with my staff and me.
[1] Pub. L. No. 117-263, 136 Stat. 3421 (2022).
[2] Id. at 3422.
[3] Financial Data Transparency Act Joint Data Standards, Release No. 33-11295 (Aug. 2, 2024) (the “Proposing Release”), available at https://www.sec.gov/files/rules/proposed/2024/33-11295.pdf.
[4] Even if the final joint data standard for the legal entity identifier were LEI, the Commission could, as part of its agency-specific rulemaking, determine to use a legal entity identifier that is not LEI if the Commission determines either that using LEI was not feasible or that using a legal entity identifier other than LEI would minimize disruptive changes to the persons affected by LEI. See, e.g., the Proposing Release at note 20.
[5] See Section 5821(e) of FDTA, 136 Stat. at 3425.
[6] See Section 5823 of FDTA, 136 Stat. at 3427.
[7] See Section 5811(a) of FDTA, 136 Stat. at 3422.
[8] See Proposing Release at p.23.
[9] See CIK Lookup, available at https://www.sec.gov/search-filings/cik-lookup and https://www.edgarcompany.sec.gov/.
[10] See https://icis.corp.delaware.gov/Ecorp/FieldDesc.aspx#FILE%20NUMBER (describing the file number as “a unique identifier assigned to each entity incorporated, formed, qualified or registered with the Division of Corporations”).
[11] See, e.g., Form ADV, Part 1A, Item 1.P.
