Research conducted 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 onboarding costs alone. With estimated total industry spend on client onboarding equal to U.S.$40 billion per year, productivity improvements 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 regulators have mandated their use for reporting over-the- counter derivatives 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 substantially 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 improved efficiencies and lower 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 customer experience, thanks to streamlined processes.
- Wider use of LEIs could address common pain points' in counterparty identification during client lifecycle management, such as the manual linkage of disparate 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 external data sources.
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 evaluating 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...