Exploring a Maturity Score for the Global Legal Entity Identifier - LEI
LEI MATURITY SCORE OVERVIEW
The proposed concept of the “LEI Maturity” of a country represents an evaluation of the country’s commitment to promoting and maintaining Legal Entity Identifiers. LEIs uniquely identify companies and organizations and allow them to participate in financial markets while complying with regulatory standards. A LEI Maturity Score for each country will be a key measurement of a country’s compliance with LEI regulations, and thus an indicator of security and transparency when conducting business with foreign entities.
A number of different factors and indicators may be important to consider when determining what might constitute LEI maturity. When solely considering the number of LEIs registered in each country, several countries have remained as clear frontrunners in recent years. The LEI system was established in part as a response to the global financial crisis of 2008 in order to provide more clarity into corporate hierarchies and ownership structures; as such, many countries that were deeply affected by the financial crisis, including the United States and the United Kingdom, have consistently registered the highest number of LEIs since the introduction of the system. Thus, these countries and others with similar amounts of registered LEIs can likely be expected to be assigned high LEI Maturity Scores.
These expectations raise the question of whether the number of LEIs should be the only criteria accounted for when determining the LEI Maturity Score. Upon researching several economic indicators and indexes, the team determined that certain factors may provide further insight into the actual “LEI Maturity” of each country and can be used to better predict future trends. A simple, even naive example would be considering GDP per Capita in relation to total issued LEIs, as displayed in the graphic below.
However, an exact metric has yet to be finalized, as several metrics that account for different indicators have been proposed. It is necessary to consider each of the potential metrics, as they all yield different yet significant results.
POTENTIAL MATURITY SCORE CALCULATIONS
There are several different ways in which a LEI Maturity Score might be calculated. The team created several metrics using various economic indicators, with each metric including the number of LEIs registered in the country as of May 2023.
The first potential metric, seen below, is calculated by dividing the number of LEIs issued in the country by the agriculture share of the country’s GDP. More specifically, the agriculture share is the percent of the country’s GDP that is produced from the agriculture sector. A country’s GDP can be divided into three sectors: industry, service, and agriculture. Therefore, the agriculture share is the percent of the country’s GDP that is not produced from the industry or service sectors. Thus, this metric calculates a LEI Maturity Score for each country such that countries whose GDPs are less dependent on agriculture are deemed more “LEI Mature.”
LEI / (100 - (Man% + Service%))
The second potential metric, seen below, is calculated by dividing the number of LEIs issued in the country by the percent of workers who are employed in the agriculture sector. More specifically, the percent of workers who are employed in the agriculture sector represents all workers who are not employed in the industry or service sectors. Therefore, this metric calculates a LEI Maturity Score for each country such that countries with a lower percentage of the workforce employed in agriculture, and therefore a higher percentage of the workforce employed in industry, are considered more “LEI Mature.”
LEI / (100 - (%industry + %service))
The third potential metric, seen below, is calculated using the political stability score, which is determined annually on a scale from -2.5 to 2.5. The country’s political stability score is added to 5 to eliminate any negative scores, and it is then multiplied by the number of LEIs issued in the country. This product is then divided by 1000. Thus, this metric puts the most weight on political stability as a determinant of how committed a country is to uphold and prioritize the LEI system over other matters
LEI*(pol stab + 5)/1000
The fourth potential metric, seen below, is calculated by multiplying the number of LEIs issued in the country by the calculated industrial index score and then dividing by 1000. The IIS, which was created by the team to indicate how industrially advanced a country is, is the sum of multiple terms. It is a value out of 3 but can be divided by 3 to produce a score out of 1. The GII, or Global Innovation Index, is divided by 100 and added to the HDI, or Human Development Index. The percent of workers in the country who are employed in the industry sector is then added to the percent who are employed in the service sector. Next, the GDP share, the percentage of the global GDP that is composed of the country’s GDP, is multiplied by the sum of the manufacturing share and services share of the country’s GDP. Finally, the political stability score is multiplied by 0.2 to scale to a range of 1. This metric considers the industrial status of a country as a scaling factor by which countries scoring higher on the proposed industrial index are also deemed more “LEI Mature.”
(LEI*((GII/100) + HDI + %in_industry + %in_service + (GDP%)*(man% + service%) + 0.2*(pol. stability))) / 1000
The fifth potential metric, seen below, is calculated by dividing the number of LEIs issued in the country by the calculated industrial index score and then dividing by 1000. The IIS, which was created by the team to indicate how industrially advanced a country is, is the sum of multiple terms. It is a value out of 3 but can be divided by 3 to produce a score out of 1. The GII, or Global Innovation Index, is divided by 100 and added to the HDI, or Human Development Index. The percent of workers in the country who are employed in the industry sector is then added to the percent who are employed in the service sector. Next, the GDP share, the percentage of the global GDP that is composed of the country’s GDP, is multiplied by the sum of the manufacturing share and services share of the country’s GDP. Finally, the political stability score is multiplied by 0.2 to scale to a range of 1. This metric does the opposite of the fourth in that it takes a ratio between number of LEIs and the calculated industrial index score in order to determine “LEI Maturity.”
LEI / ((GII/100) + HDI + %in_industry + %in_service + (GDP%)*(man% + service%) + 0.2*(pol. stability))*1000)
The sixth potential metric, seen below, is calculated by adding the LEI share, which is the percentage of total global LEIs that were issued in the country, and the GDP share, which is the percentage of the global GDP that is composed of the country’s GDP. This sum is then multiplied by the industrial index score. The IIS, which was created by the team to indicate how industrially advanced a country is, is the sum of multiple terms. It is a value out of 3 but can be divided by 3 to produce a score out of 1. The GII, or Global Innovation Index, is divided by 100 and added to the HDI, or Human Development Index. The percent of workers in the country who are employed in the industry sector is then added to the percent who are employed in the service sector. Next, the GDP share, the percentage of the global GDP that is composed of the country’s GDP, is multiplied by the sum of the manufacturing share and services share of the country’s GDP. Finally, the political stability score is multiplied by 0.2 to scale to a range of 1. This metric considers not only number of LEIs and GDP, but rather percentages of the global totals, along with an industrial scaling factor, in order to conclude that countries with a higher share of the world’s registered LEIs and GDP are more “LEI Mature.”
(LEI% + GDP%)*((GII/100) + HDI + %_in_industry + %_in_service + (GDP%)*(man% + service%) + 0.2*(pol. stability))
MATURITY SCORE OUTCOMES
Depending on the metric that is ultimately chosen, the LEI Maturity Score will yield different results and potentially different conclusions.
For all six potential metrics, the United States has the highest LEI Maturity Score, which is to be expected as the United States has consistently had the highest number of registered LEIs. Additionally, the United Kingdom and Germany consistently score within the top 4 for each metric; this accurately represents the fact that the United Kingdom and Germany have the second and third most registered LEIs, respectively, as of May 2023.
The results are less consistent among metrics for other countries, however, leading to varying conclusions about certain countries’ “LEI Maturity.” For example, China has the second highest score according to the sixth metric, but it only has the eleventh highest score globally when using the third metric. These different results signify the importance of utilizing and considering indicators and indexes other than simply the number of registered LEIs when determining “LEI Maturity,” as the use of different factors can drastically change conclusions.
Varying results and comparisons among metrics can be further considered when the LEI Maturity Scores are identified for a selected grouping of countries. A random subjective sample of 17 countries was taken, and countries were placed into five groups of three to four countries.
Group 1 consists of the United States, Mexico, Panama, and Brazil. For each of the six metrics, the United States has the highest maturity score, and Brazil has the lowest maturity score for all but the sixth metric, which results in Brazil receiving the second highest score in the group. Mexico and Panama switch between the second and third highest scores for each of the first five metrics, with Panama receiving the lowest LEI Maturity Score according to the sixth metric.
Group 2 consists of the United Kingdom, Germany, Ireland, and Malta. Ireland and Malta have the third highest and lowest score respectively for all but the second metric, which results in Ireland receiving the lowest score in the group. Germany has the highest score in the group according to each metric other than the second metric, which places the United Kingdom at the top of the group.
Group 3 consists of Saudi Arabia, Qatar, and Tunisia. Unlike the other groups, all six of the metrics produce the same placements for each of the countries, with Saudi Arabia receiving the highest LEI Maturity Score and Tunisia receiving the lowest score.
Group 4 consists of South Africa, Kenya, and Jordan. South Africa leads the group according to each metric, and Kenya receives the lowest LEI Maturity Score for each metric except for the second metric, which places Jordan at the bottom of the group.
Group 5 consists of China, India, and Egypt. Egypt consistently scores the lowest in the group for each of the metrics, except for the first metric, which assigns India the lowest score. India receives the highest LEI Maturity Score according to the third and fifth metrics, but the rest of the metrics place China at the top of the group.
When considering the sample as a whole, the United States has the highest score according to each of the metrics, except for the second metric, which places the United Kingdom at the top overall. Tunisia receives the lowest score overall from the first metric, and Kenya receives the lowest score from the second metric. According to the fourth and fifth metrics, Jordan has the lowest LEI Maturity Score, and the third and sixth metrics place Tunisia and Jordan in a tie for lowest overall score.
The United States is the country with the most LEIs, so it is to be expected that it would have a consistently high LEI Maturity Score. On the other hand, Tunisia, Kenya, and Jordan all have less than 200 registered LEIs as of May 2023, so a low LEI Maturity Score for each of the three countries is anticipated. Therefore, while each of the metrics produce varying results, there are general trends that are observed among each metric, and each of the trends is consistent with expectations regarding “LEI Maturity”.
CONCLUSION
The discussed metrics were created by the team using indexes and economic indicators that were chosen from reputable sources following extensive research. However, the metrics were developed based on what the team considered to be potentially necessary to determine “LEI Maturity”. This is not a known or exact value, as signified by the varying results among the six metrics. Further research into the meaning of “LEI Maturity” and individual indexes and indicators is still required to finalize a formula and narrow in on one metric for the LEI Maturity Score. Additionally, data for several of the indicators was not available following 2021. The team would appreciate and consider any feedback about the metrics, factors included in the metrics, and the presentation of the calculations and results.
REFERENCES
“Employment by Sector (%).” World Bank Gender Data Portal, genderdata.worldbank.org/indicators/sl-empl-zs/?employment=Industry&gender=total. Accessed 3 July 2023.
“History of the Global LEI System.” GLEIF, 2023, www.gleif.org/en/about/history.
“Human Development Insights.” Human Development Reports, hdr.undp.org/data-center/country-insights#/ranks. Accessed 3 July 2023.
“Innovation Index — Country Rankings.” The Global Economy, 2022, www.theglobaleconomy.com/rankings/gii_index/.
“Introducing the Legal Entity Identifier (LEI).” GLEIF, 2023, www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei.
“LEI Statistics.” GLEIF, 2023, www.gleif.org/en/lei-data/global-lei-index/lei-statistics.
“Manufacturing, Value Added (% of GDP).” The World Bank, data.worldbank.org/indicator/NV.IND.MANF.ZS?most_recent_value_desc=false&view=map. Accessed 3 July 2023.
“Political Stability — Country Rankings .” The Global Economy, 2021, www.theglobaleconomy.com/rankings/wb_political_stability/.
“Services, Value Added (% of GDP).” The World Bank, data.worldbank.org/indicator/NV.SRV.TOTL.ZS. Accessed 3 July 2023.
“World Economic Outlook Database.” International Monetary Fund, 7 Apr. 2023, www.imf.org/en/Publications/WEO/weo-database/2023/April.
RESEARCHERS
Morgan Sindle: Rising Third Year at Duke University in the Pratt School of Engineering. Majoring in Biomedical Engineering and minoring in Economics.
Daniel Gross-Loh: Rising Third Year at the University of Pennsylvania. Majoring in Sociology with a concentration in Cities, Markets, and Global Economy.
With special thanks to Gavin Johnson, Tom Skinner, and pTools Software
