May 28, 2018
Secretariat to the Financial Stability Board
Bank for International Settlements
Centralbahnplatz 2CH-4002 Basel
Switzerland
Comments on the second consultation document,“Governance arrangements for the unique product identifier (UPI)”,
issued by the Financial Stability Board
Dear Sirs/Madams:
We, the Japanese Bankers Association (JBA), would like to express our gratitude for thisopportunity to comment on the second consultation document, “Governance arrangements forthe unique product identifier (UPI)”, issued by the Financial Stability Board (FSB) on April
26, 2018. We welcome the work on harmonisation of data elements undertaken byinternational authorities including the FSB, in the situations where OTC derivatives
transaction reports are filed based on different definitions and formats across countries andjurisdictions, and believe that practicable, stable and effective UPI Governance Arrangements
should be implemented and established. We respectfully expect that the following comments
will contribute to your further discussion.
[General comments]
1. Basic concept
UPI should be designed to ensure a simple and low-cost framework.
As suggested in our comments on the initial consultation document, 1 the existing
frameworks established in the industry (e.g. ISDA Taxonomy) should be sufficiently respected
and overly complicating the governance arrangements and current business practices should beavoided.
Specifically, the FSB should minimize required UPI data elements and enable UPI toaccurately and simply reflect necessary information by excluding information that is coveredby reporting data elements other than UPI, such as currencies and tenors. Complicating UPI
will increase the number of UPIs to be assigned, leading to undue increases in governance1

https://www.zenginkyo.or.jp/fileadmin/res/abstract/opinion/opinion291137.pdf

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costs and users’ burdens.
Overly complicated UPI may impose substantial burdens on large financial institutions,
UPI Reference Data Library Operator, and UPI Service Provider(s), which will need to obtainor assign a large number of UPIs. Furthermore, it may also impose excessive costs on smalland medium-sized financial institutions with limited capacity even though they only engage ina small number of transactions for certain asset classes (e.g. interest rate). Consequently, it
may be difficult to achieve regulatory goals, substantially undermining the UPI framework.
Therefore, in light of the limited usage of UPI for purposes beyond regulatory reporting,UPI should be designed in a way that ensures a simple and low-cost framework as much aspossible.
2. Number of UPI Service Providers
If the existing ISDA Taxonomy is sufficiently respected and required UPI data elements
are minimised, we consider that UPI Service Providers may not be necessarily designated inthe first place.
If the FSB decides to designate a UPI Service Provider, there should be only a single
UPI Service Provider or up to a bare minimum number (two or so, at most) based on ourbasic concept described in 1.
If there is a single UPI Service Provider, the UPI framework will be considerably simple,
enabling counterparties to easily ensure uniqueness/consistency of the UPI. However, as notedin the consultation document, it might not be ensured that the single UPI Service Provider has
expertise across all asset classes unless that UPI Service Provider is excellent,On the other hand, if more than one UPI Service Provider coexists, users may bear thosemultiple UPI Service Providers’ start-up costs and it may be necessary to standardize theirinfrastructures and operations. Furthermore, the existence of a number of UPI Service
Providers will make coordination across them considerably difficult, resulting in a more
complex framework, including the model of the Data Library. There are also someuncertainties from regulatory perspective. For example, it is uncertain whether
uniqueness/consistency can be ensured in case each party applies for obtaining new UPI Codeto different UPI Service Providers.
These costs and risks will increase in proportion to the increase in the number of UPI
Service Providers. Therefore, it is likely that such risks and costs will exceed a limited benefitof cost reduction generated by competition among a number of UPI Service Providers.
Nonetheless, it is not our intention to completely deny competition. If competition can2

improve services (e.g. providing services in multiple languages) or minimise costs andfees/commissions, such benefits should be welcomed.
All things considered, in order to realise our basic concept of “simple and low-costframework”, the FSB should basically adopt the Single UPI Service Provider model andincorporate elements of the Competitive model to the extent necessary. The number of UPI
Service Providers should be limited to one or up to the bare minimum (two or so, at most),
under the condition that there will be a robust governance framework over costs and services
and that the service will be provided 24-hours a day, reflecting each jurisdiction’scircumstance.
[Our responses to questions]
1. Question 1:
Do you agree a public-private partnership model such as the one sketched above should beadopted for the UPI Governance Arrangements?

(Comments)
We agree.
(Rationale)
The proposed allocation of UPI governance functions realises a simple framework similar
to the LEI framework, which we requested in our comment to the initial consultation
document, and is expected to ensure the appropriate and efficient operation of the UPI Systemthrough the mechanism whereby oversight/advice is provided by both the public and private
sectors.
2. Question 7:
If revenues for a year have exceeded or fallen short of anticipated costs for that year, should
the UPI Service Provider have a mechanism for rebating or recovering the excess, either
during that year or at a later time?

(Comments)
Under the condition that appropriate and robust governance will be put in place and theUPI Service Provider will undertake thorough efforts for cost reduction, we have no objection
to the FSB’s proposal to permit passing of the bare minimum amount to users according tosuch profits/losses situation. However, it would be also necessary to leave open for thepossibility of prohibiting and restricting undue passing of UPI Service Providers’ profits/losses
to users to avoid disorderly passing of profits/losses by them. Furthermore, if it is determinedto permit such passing of UPI Service Provider’s costs to users, necessary arrangements toavoid a surprise to users should be taken in advance, such as fixing the timing of such passingand making a pre-announcement.
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(Rationale)
Since a UPI Service Provider is a private operator, its sustainability cannot be ensured
unless there is a mechanism where losses, incurred by the UPI Service Provider but not causedby its fault, will be covered by users. On the other hand, given that UPI seeks the publicinterest, the UPI Service Provider should not overly pursue profits. Therefore, even if the UPI
Service Provider succeeds in reducing costs through its own efforts, resulting profits should bereturned to users to some extent.
In either case, changes in the amount to be defrayed by users will need to be effectively
adjusted by Industry Representation Group (IRG) respecting the concept of the public-private
governance structure referred to in Question 1.
3. Question 8:
Do you believe that a UPI Service Provider should be allowed to cross-subsidise theprovision of UPI Services with revenues from other business lines, either with regard tostart-up costs or on an ongoing basis? Why or why not?

(Comments)
We agree and believe that a UPI Service Provider should be allowed to use revenues fromother business lines for start-up costs or costs to be incurred on an ongoing basis.
(Rationale)<Start-up costs>
If a UPI Service Provider is not allowed to raise necessary funds for start-up costs fromother business lines, it is assumed that users will pay such costs before UPI is introduced.
However, it is difficult to determine allocation of such costs among the users based on eachuser’s volume of UPI usage, since it is unclear beforehand. Therefore, a certain amount ofcosts would be uniformly allocated to all users regardless of the volume of usage, which isunfair.
In this view, a UPI Service Provider should raise funds temporarily from other businesslines and then recover start-up costs subsequently in the course of its UPI business.
<Costs to be incurred on an ongoing basis>
In principle, costs to be incurred on an ongoing basis should be recovered in the course ofthe UPI business. However, a mechanism for promoting the UPI Service Provider’s businesssustainability should not be denied as much as possible given its nature as a market
infrastructure. Cross-subsidies should be permitted because if services in combination withother business lines are provided as a result of service innovation, a situation could arise where
it is difficult to distinguish the UPI business exactly from other business lines.
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Furthermore, it is possible that the UPI Service Provider will be unable to run its UPI
business by solely relying on the revenue from the UPI business in the case of certain asset
classes (see Question 19) because the number of UPIs to be assigned would be limited.
Therefore, there is no reason to deny the possibility that the UPI Service Provider may provide
UPI Services in a package with other services.
4. Question 9:
Should a UPI Service Provider be permitted to provide value-added products and services(i.e., products and services that incorporate UPI data but are not required by the UPI
Technical Guidance)?

(Comments)
A UPI Service Provider could be permitted to provide value-added products and services
so long as users are given an option to choose the sole use of services that are required by theUPI Technical Guidance.
(Rationale)
UPI Service Provider’s provision of value-added, various services itself would increase
the profitability of its business and will contribute to the sustainability of the UPI framework.
However, it should be ensured that users will not be forced to, for example, use the UPI
Service in combination with other unnecessary services or at unreasonable prices. Specifically,potential measures may be considered: to require the UPI Service Provider to offer thesimplest service (i.e. services that are required by the UPI Technical Guidance) and to ensurethat users selecting the simplest service will not be treated unfavorably, and to establish
governance that will appropriately work on the pricing of each service.
5. Question 18:
If you believe that the UPI can and should be used for purposes other than solely regulatory
reporting, describe in detail and provide specific examples of any such additional purposes.

(Comments)
Currently, from users’ perspective, we do not recognise any purposes other thanregulatory reporting for the use of the UPI.
(Rationale)
The UPI, unlike the LEI, is not currently assumed to be used for purposes other thansolely regulatory reporting. Parties to OTC derivatives transactions have been alreadyconducting risk management and other activities robustly in accordance with the existing
frameworks. Considering these situations, we do not think the UPI can be used for additional
useful purposes. Therefore, regulators are requested to sufficiently discuss how the UPI will be5

used in their monitoring and to draw a conclusion regarding the UPI’s necessity andgranularity that is reasonable for users.
Depending on the development of such discussions, it may be concluded that the UPI’s
intent and purposes could be sufficiently achieved with less burdens through alternative
approaches instead of introducing a completely new framework as currently proposed.
Specifically, it would be worthwhile to consider, as alternatives, transitioning the existing
ISDA Taxonomy framework into the UPI System or keeping the UPI’s granularity to theminimum necessary level. Lacking information could be supplemented by the CDE
framework.
6. Question 19:
Considering the pros and cons of each of the above-mentioned models (Single UPI
Service Provider model or Competitive model), what would in your view be the mostsuitable? Please provide detailed reasoning.

(Comments)
UPI should be designed to ensure a simple and low-cost framework and to that end, onlya single UPI Service Provider or up to a bare minimum number (two or so, at most) should bedesignated. (The FSB should basically adopt the Single model and incorporate elements of theCompetitive model to the extent necessary.)(Rationale)<From cost perspectives>
If multiple UPI Service Providers coexist, users will bear start-up costs of such multiple
UPI Service Providers, and that leads to an increase in costs for users. In the case of products
to which a UPI Code is not assigned, it is considered that both parties to the transaction will
apply for a UPI Code. This will increase the uncertainty as to whether the UPI Code can beobtained without causing overlaps between the multiple UPI Service Providers and whether
the regulatory reporting can be completed by the deadline. In order to avoid the risk of thesame product being assigned different UPI Codes by different providers, it will be necessary toupdate the Data Library on a real-time basis. However, this raises a concern that it could bevery costly to establish processes and procedures or to maintain the Data Library.
In addition, co-existence of multiple UPI Service Providers will only result in an increasein users’ burdens unless infrastructures and operations are standardized.
From the above viewpoint, having multiple UPI Service Providers will increase costs for,for example, management and supervision across them and maintaining the Data Library. As aresult, while competition has cost reduction effects, the Competitive model is likely to give6

rise to more costs than the Single UPI Service Provider model.
As for the UPI, while it is necessary to at least ensure that the service is provided for
24-hours a day and an operating framework reflects each jurisdiction’s circumstance, giventhat the UPI has lower usability relative to the LEI, it would be preferable to have a single UPI
Service Provider or up to a bare minimum number (two or so, at most) and design aframework as simply as possible, instead of promoting cost reduction and service innovation
through the excessive Competitive model.
Further, taking into account negative effects of a single UPI Service Providermonopolizing the market (e.g. downward price rigidity), the FSB may ensure that adjustments
by the IRG is made on costs and services and may take an approach to leave room for
replacing UPI Service Providers through periodic bidding under the condition that no
additional burden will be imposed on users’ operation.
<From business perspectives>
The consultation document also assumes applying the Competitive model at one asset
class level. However, with respect to interest rate products or FX products, for example, if theinitial round of assignment of UPI Codes is completed at the time of implementation of theUPI scheme, subsequent assignment of new UPI Codes is expected to be limited. In such cases,possibly, there will not be enough incentive to innovate the UPI Code assignment businessfrom profitability perspective, which means the dysfunction of the Competitive model.
Also from the perspectives of accuracy and efficiency, we consider that it is advisable that
the UPI contains the bare minimum number of data elements, thereby decreasing thefrequency of assigning new UPI Codes and establishing a simple framework under the Single
UPI Service Provider model.
The above point also supports our view that the Competitive model may not function welland that the Single UPI Service Provider model is preferable from the perspective ofminimising maintenance and management costs.
7. Question 20:
Do you believe that there should be a single UPI Reference Data Library if multiple UPI
Service Providers coexist in the UPI System? Why or why not?

(Comments)
We believe that there should be a single UPI Reference Data Library.
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(Rationale)
Lack of a single Data Library could give rise to overlaps and inconsistencies of UPICodes between UPI Service Providers.
Even if a single Data Library exists, if multiple UPI Service Providers coexist, time lag
upon data update is highly likely, which indicates that accurate and smooth acquisition of UPI
Codes on a real-time basis will be difficult. Therefore, the single UPI Service Provider model
will be preferable also from this viewpoint as it will not generate unnecessary costs arisingfrom, among other things, establishment and maintenance of the Data Library.
8. Question 21:
What would be the value added in having competing UPI Service Providers if there was asingle entity centrally managing the UPI Reference Data Library?

(Comments)
Having competing UPI Service Providers is assumed to realise, in theory, added value
through reduction of prices and improvements in services. However, it is our concern that inreality, such benefits will be limited and may rather become a factor to increase overall costs.
(Rationale)
Where multiple UPI Service Providers coexist, competition is expected to possibly
contribute to improvements in prices and services. However, considering the overall costs,
there should be only a single UPI Service Provider or up to a bare minimum number (two orso, at most) as mentioned in our comments to Question 19.
If the FSB determines to allow co-existence of multiple UPI Service Providers, it is atleast necessary to develop common infrastructures and then to make efforts to enable users to
select and change a UPI Service Provider without incurring operational and other burdens.
However, such actions will also be a cause to increase costs.

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