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LEI 101 – HOW IT WORKS AND WHY IT ENABLES SMARTER, LESS COSTLY AND MORE RELIABLE DECISIONS ABOUT WHO TO DO BUSINESS WITH

A Q&A with GLEIF’s CEO Stephan Wolf.

 

Who is GLEIF and what is a LEI?

The Financial Stability Board (FSB) established the Global Legal Entity Identifier Foundation (GLEIF) to support the implementation and use of the Legal Entity Identifier (LEI).

 

In the past, accurately identifying legal entities on a global level has been a complex task, requiring a significant investment in time, money and resources. This was because there wasn’t a single, open and up-to-date database giving you all the information you needed.

This lack of transparency ultimately led to financial crises, fraud and market abuse.

 

LEIs trace their origins to the 2008 financial crisis, when regulators and capital market players needed to quickly assess the extent of market participants exposed to Lehman Brothers and each of its hundreds of subsidiaries. This laid bare the critical need for a system to identify and understand exposures at the legal entity level instead of the aggregate, parent-company level. If it had been available at the time, a system that assigns an electronic, standard entity identifier to legally distinct parties would have helped to fill this gap.

 

In order to remedy this, the FSB, together with the finance ministers and central bank governors represented in the G20, advocated developing a universal LEI for any legal entity involved in financial transactions.

 

The LEI is a 20-digit, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). Each LEI connects to key reference information describing a legal entity including its ownership structure. LEIs enable smarter, less costly and more reliable decisions about who to do business with, while bringing simplicity to onboarding and transacting.

 

This is why GLEIF exists. We make available the Global LEI Index, which is the only global online source that provides open, standardized and high-quality legal entity reference data.

 

Why are LEIs important?

Current identification processes have significant manual components and often require the use of multiple databases in which a counterparty may be identified by a different name. Many banks and corporations still use names rather than identifiers, resulting in confusion. As an example, a large bank’s client services division recently found that it had an average of five names—with minor variations in its database—for the same organization. Additionally, commonly used databases, different divisions and IT systems within organizations can all have varying versions of the same entity’s name, making it harder to trace and to link information from multiple sources.

 

How do LEIs work?

It’s a simple process. A company that wishes to obtain an LEI chooses its preferred business partner from the list of GLEIF-accredited LEI issuing organizations. Through self-registration, a legal entity that then supplies accurate reference data. This reference information is validated against third party sources, before it’s hosted online for all to use.

By replacing siloed information with a standardized approach, LEIs take the complexity out of business transactions.

Since being introduced, LEIs have allowed public authorities to better evaluate risks, make corrective steps and improve data integrity. And they’re giving businesses the confidence they need to engage in transactions with total visibility, greater certainty and improved control.

 

How do LEIs fix business problems?

In our report – A New Future for Legal Entity Identification – we looked into the challenges of entity identification in financial services. We found that one of the biggest issues lay in onboarding new businesses, with streamlined onboarding far from a reality within the sector. In fact, over half (57%) of salespeople in banks said they spend 27% of their working week (or more than 1.5 days per week) onboarding new client organizations. With half (50%) of financial institutions using, on average, four identifiers to help identify client organizations during the onboarding process, inefficiencies are plaguing the process for many businesses.

 

This has significant consequences; 39% of respondents reported that there is a risk of losing business due to the length and complexity of the process. In fact, the respondents in our study believed that 15% of business is at risk as a result of the client losing patience with the process and 14% is lost because the client’s identity cannot be verified.

 

The stats further highlight how adopting LEIs for each client organization can provide slicker onboarding which leads to improved consistency, less risk of business loss and more efficient use of valuable resources. We’ve found that introducing LEIs into capital market onboarding and securities trade processing could reduce annual trade processing and onboarding costs by 10%. This would lead to a 3.5% reduction in overall capital markets operations costs (or U.S.$150 million in annual savings) for the global investment banking industry alone.

 

Why all businesses should have a LEI

There are millions of business entities on our planet, and it’s increasingly important that we can identify who is who and what is what. The LEI allows everyone to cut costs, accelerate operations and gain deeper insight into the global marketplace.

This means businesses won’t lose time and money due to an inefficient process. They can make smarter, less costly and more reliable decisions about who to do business with, because the LEI becomes the common link that pieces all records associated with an organization together. This provides certainty of identity in all online interactions, and makes it easier for everyone to participate in the global digital marketplace.

 

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Interviews

DIFFERENTIATION – THE KEY TO THRIVING IN A SATURATED MARKET

Graham Glass, CEO of Cypher Learning

 

What has enabled Cypher to continue to grow in an increasingly saturated market?

Recognising opportunities for growth around the world is actually one of the things that has helped us grow. We realized that there were so many opportunities outside of the U.S or Western Europe and actually, a lot of our revenue comes from outside of these regions. For example, with our education based LMS, NEO, we have schools and institutions in the Philippines, Latin America, Norway, Australia, and more. The way we have created the product allows the flexibility for it to be tailored to each educational institution’s exact needs and because of this process, we can provide different languages, different elements of learning and really help the teachers in each country make the most out of the system.

 

You have recently expanded into four more locations: Australia, Indonesia, Malaysia and Russia. What was the reasoning behind deciding on these locations?

The growing popularity of our learning platforms has made it possible for the company to expand quickly and cover more of the market around the world. The selection of the new sales offices came as a natural move, as we started to get more and more customers in those locations, and we wanted to seize the opportunity to expand even more. We also wanted to provide local support to our customers, which is an important aspect in our strategy. Since we already had an office in The Philippines, opening new locations in Indonesia and Malaysia was essential. In the case of Australia, since we launched the APAC version of our platforms, with servers hosted in Sydney, it was also vital to have a sales office as well.

 

What is different about your products compared to your competitors?

CYPHER LEARNING is currently the only company on the market that provides a learning platform for each e-learning segment: academic, corporate, and entrepreneurs. Our products are built on the same core platform. They share some functionalities and the overall design of the platform, but they’re targeted towards different markets. NEO is an LMS for schools and universities, MATRIX is an LMS for businesses, and INDIE is an LMS for entrepreneurs. For each of our products, we have created special functionalities that address the needs of each market.

Our platforms are very intuitive, easy to use, and visually appealing, which makes the whole experience more engaging and enjoyable for all users. The navigation is simple, and you can customize the platforms to match your brand and fit your needs.

Our platforms are built to ensure a smooth implementation and they’re easily adopted by students, teachers, trainers, and entrepreneurs. We offer support for 40+ languages, mobile apps for all devices, and accessibility features so all users can enjoy the platform.

CYPHER LEARNING products provide complete solutions with powerful features for managing all teaching and learning activities for schools, organizations, and entrepreneurs.

We’re also focused on bringing innovation through our platforms, by creating cutting-edge features that other systems do not support such as automation, adaptive learning, and competency-based learning.

 

How do you see the e-learning market changing and developing in the future?

I’m very excited about the future of the e-learning market. Machine learning and artificial intelligence hold great potential in terms of making learning truly personalized. We’re already on that path, taking steps forward with automation, multi-layered neural networks, feedback algorithms, amongst many other developments. And things will advance on a massive scale, rather quickly. With AI in online education, we’re not talking about 20 years until it will become the norm. Some of these technologies are going to be available and mainstream in the next few years. Keeping up with these changes and making sure the incredible amounts of learner data will be used correctly will be challenging, but I have high hopes of what the future has in store for us.

 

What advice would you offer other individuals and businesses in the e-learning industry?

We’re all in this together so we need to stay true to ourselves. In order to provide the best tools, the best solutions and the most memorable experiences that support people of all ages to learn new things, we need to keep on learning ourselves. That’s the only way to continued growth, both personally and professionally.

 

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Interviews

IPO: WHY GO PUBLIC?

By Sandy Campart

 

The main objective of an IPO – Initial Public Offering – is to raise capital in order to allow a company to grow. However, during a global economic slowdown, investors are increasingly cautious. In times like these, how should you prepare to go to the market?

 

Reasons for an IPO

A company’s motivation for going public is often linked to the idea of “creating one’s own currency” in order to fund internal and external growth, to diversify future sources of finance and strengthen the financial structure of the company. Listing a company on the stock exchange results in tradability and liquidity, allowing previous shareholders to exit, realising a gain on their capital. It also creates a valuation for the company which will be useful for future succession plans. At a strategic level, an IPO can enable the company to clarify its strategy, refocus its activities, increase its visibility and credibility, and ultimately differentiate itself from competitors.

Nonetheless an IPO will significantly change the way a company operates. Corporate governance has to be overhauled, support functions professionalised and financial communication must be made transparent. All studies show that, when information is withheld, the negative impact on the share price is greater than if the bad news had been announced.

 

2019: a mixed bag

In 2019, newly listed companies have seen their share price grow by almost 13% on average. However, the figures vary greatly. Software and IT security companies have performed the best with an average of nearly 40%.

Nevertheless, the stock market performances of SmileDirect (dental aligners), Peloton (exercise bikes and fitness) and even Uber attest to the increased scepticism of investors for unrealistic or exaggerated levels of profitability. Uber’s price has been particularly disappointing since the latest results presented were well below the expectations of the investors. In the second quarter of 2019, the turnover was more than 5% lower than expected and the profit – or rather the deficit – per share was 53% greater than expected. Uber’s growth has been slower than that of rival app Lyft, and the restructuring costs associated with many departures, lay-offs and resignations do not seem to be controlled. Additionally, Uber’s CEO, Dara Khosrowski, told his employees that the teams were too large to be compatible with the pace of growth needed, while Uber’s CTO, Thuan Pham, believes it could take decades for Uber to achieve its “vision”, suggesting there could be a later than expected ability to turn a profit.

 

Towards a better year in 2020?

For a company wishing wanting to maximise its initial flotation price, there are two strategies to pursue: the first is to float when the company is performing exceptionally, the second is to wait until the stock market is in a more favourable position.

In the context of a global economic slowdown, investors have for several months been moving towards “safe haven” shares in order to protect their assets. This, combined with the chaotic path of some recently introduced companies and the abundance of private financing, makes it difficult to see an acceleration of operations in 2020.

Even though the flotation of Airbnb remains topical, Postmates (delivery service) and Endeavor (talent agency) have paused their entry to the stock market. It is possible they are prioritizing interest from venture capitalists and risk capitalists. Palantir (Big Data) and Stripe (internet payments) could also look for private funds instead.

 

The WeWork failure

WeWork is the most prominent example of our current inability to distinguish a unicorn from a chimera. Investors have to learn – or re-learn – how to resist those appealing equity fairy stories and to see beyond the innovative nature and rapid growth of a concept. Cash flow, debt level and governance remain key decision-making factors. In the WeWork prospectus, the word “technology” appears more than 120 times. The Coué method of repetition is here being used to suggest that traditional valuation models should not apply to this business. There is little doubt, however that WeWork is more of a property developer with an innovative business model than it is a technology company.

 

About Sandy Campart 

Sandy Campart is a lecturer and researcher. He is a member of the Centre of Research for Economics and Management (CREM), part of the French National Centre for Scientific Research (CNRS). M. Campart is director of IUP Banque Finance Assurance de Caen – a finance school in Normandy – and author of “If we dared to invest in the stock market”.

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