The Financial Stability Board this week issued a “Thematic Review on Implementation of the Legal Entity Identifier.” The LEI is a 20-character, alpha-numeric code that was introduced following the financial crisis to be adopted globally to uniquely identify legally distinct entities that engage in financial transactions.

The new report sets out recommendations to address the issues identified in the peer review and promote broader LEI adoption.

Since its endorsement by the Group of Twenty, or G20 (an international forum for the governments and central bank governors from 19 countries and the European Union) in 2012, the Global LEI System has been successfully brought into operation—with over 1.4 million entities uniquely identified by an LEI in more than 200 countries. Most FSB jurisdictions have implemented rules mandating LEI use in at least one area.

Adoption, the international body says, has been most successful when the LEI has been mandated by regulators as part of an international standard-setting effort or across multiple market segments. Widespread coverage has already been achieved in over-the-counter derivatives and securities markets.

In these areas, the LEI has come the closest to meeting the G20’s objective to “encourage global adoption of the LEI to support authorities and market participants in identifying and managing financial risks,” the FSB says.

“The regulatory uses of the LEI are multiple, and the benefits can be substantial,” it adds. “The LEI standardizes identification of legal entities at the global level, to support the management and analysis of large datasets. Implementation of the LEI enhances regulators’ surveillance by tracking market abuse across institutions, products, and jurisdictions.

“The LEI can also assist regulators’ and market participants’ aggregation and more flexible retrieval of granular data on entities from multiple sources, as well as the analysis of counterparty risks, interconnectedness, and complex group structures. Many in the financial industry are supportive of the LEI, citing substantial existing and potential benefits stemming from its use.”

Notwithstanding this progress, “the LEI has far to go to meet the G20’s objective.”

“Coverage is too low outside securities and derivatives markets to effectively support new industry or regulatory uses or to reach a tipping point where voluntary take-up by market participants would suffice to propel further adoption,” the FSB says. “LEI adoption also remains uneven across jurisdictions, with coverage concentrated in Canada, the European Union, and the United States. More efforts should be made both at national and international levels to promote LEI adoption and enhance the benefits to authorities and market participants from its use by addressing identified obstacles.”

The recommendations in the report are addressed to FSB member jurisdictions, the FSB, relevant standard-setting bodies and international organizations, the LEI Regulatory Oversight Committee, and the Global LEI Foundation.

“The LEI has a valuable role to play in helping with the effective assessment of risks in the global financial system,” says Lesetja Kganyago, governor of the South African Reserve Bank and chair of the FSB’s Standing Committee on Standards Implementation that oversaw the preparation of the peer review.

The financial crisis showed the difficulty of identifying counterparties to financial transactions across borders with accuracy and speed. To address this problem, in 2011 the G20 supported the creation of an LEI and called on the FSB to take the lead in helping coordinate work among the regulatory community to prepare recommendations for the appropriate governance framework for the Global LEI System.

At the June 2012 Los Cabos Summit, the G20 Leaders endorsed the FSB report, “A Global Legal Entity Identifier for Financial Markets.” Since then, the FSB has continued to support the implementation of the LEI.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

The FSB is chaired by Randal Quarles, vice chairman for supervision on the Board of Governors of the Federal Reserve System. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.