As covered in our earlier blog post, the Dodd-Frank Wall Street Reform and Consumer Protection Act establishes the Office of Financial Research (OFR) to collect and analyze U.S. financial data for financial regulators. The OFR is tasked with, among other responsibilities, supporting the Financial Stability Oversight Council’s oversight of systemic risk, developing tools for measuring risk levels and trends in the U.S. financial sector, and performing applied financial research for financial regulators.
One of the OFR’s initiatives is to design a global classification system for identifying all parties to financial contracts. The classification system is called a legal entity identifier (LEI) system. An LEI is a unique number that identifies a legally distinct entity that engages in financial market activities. One of the system’s objectives is to give policymakers a more in-depth and accurate view of the U.S. economy’s and global economy’s exposure to certain market participants. The OFR has been working with international financial regulators, self-regulatory bodies, and payment and settlement systems to design the LEI system. The OFR announced that it hopes to commence the LEI system in 2012.
The collection of LEI information for all financial transactions may raise privacy concerns depending on the level of granularity and type of information collected. The OFR has come under attack recently by Congress because of potential privacy issues, and on September 24, 2011, a group of Republican congressmen introduced H.R. 3044, which would repeal in their entirety provisions in Dodd-Frank establishing the OFR.