A CONFUSING array of different languages used in financial communications increases risks and damages competition, a top Bank of England official said yesterday.
The Bank’s director for financial stability, Andy Haldane, said a global tagging system for trades would make markets safer and improve risk assessment – an area of confusion which worsened the Lehman collapse.
His intervention backs moves by leaders of the G20 economies to endorse a global governance framework for a legal entity identifier (LEI).
The aim is for each firm that trades on financial markets to have its own unique code, so it can be quickly recognised when regulators want to check if exposures are becoming risky.
“Missing inventories and mistaken counterparties could be all but eliminated if financial firms’ information systems spoke in a common tongue,” said Haldane.
Markets were unnerved when it took regulators so long to find out who was exposed to derivatives transactions on the books of Lehmans.
“It is clear these failures in data infrastructure and aggregation were not unique to Lehman. They were endemic across the financial industry,” Haldane said.