November 17, 2017

Secretariat to the Financial Stability Board
Bank for International Settlements
Centralbahnplatz 2
CH-4002 Basel
Switzerland
Comments on the consultation document, “Governance arrangements for the uniqueproduct identifier (UPI): key criteria and functions,” 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 consultation document, “Governance arrangements for theunique product identifier (UPI): key criteria and functions,” issued on October 3, 2017 by the
Financial Stability Board (FSB).
We welcome the work on harmonisation of data elements undertaken by international
authorities including the FSB, in the situations where OTC derivatives transaction reports are
filed based on different definitions and formats across countries and jurisdictions, and believethat practicable, stable and effective UPI Governance Arrangements should be implemented
and established. We respectfully expect that the following comments will contribute to yourfurther discussion.
[General comments]
The JBA is an organization whose members consist of approximately 190 banks and bankholding companies operating domestically and internationally. Many Japanese banks filetransaction reports in accordance with transaction reporting requirements stipulated in Japan.
Some banks, however, report their transactions in accordance with reporting requirements in
respective jurisdictions by the main body of the bank or branches and affiliates around theworld. Each Japanese bank usually uses in-house systems for purposes of complying withnational transaction reporting requirements. It is currently a common practice among financial
institutions to set up UPIs, or other product codes similar to UPIs, in their own systems basedon regulatory guidance or a framework established at an industry level, such as ISDA
Taxonomy, and to report transactions through a trade repository. While banks bear cost fordeveloping their systems, very few banks incur cost for obtaining UPIs and other codes. Given1such situations, we would like to put emphasis on the following three opinions: (i) UPI
Governance Arrangements should avoid any complications as possible; (ii) UPI Governance
Arrangements should allow the process where financial institutions obtain a UPI of a productfor which they are expected to engage in transactions and set up the UPIs in its own in-housesystem for transaction reporting; (iii) as a governance framework, the Global Legal Entity
Identifier System (GLEIS) should be referred.
First, we expect that significantly increased burdens would not be imposed on banks as aconsequence of harmonisation directed towards establishing more complicated requirements
as a whole. Therefore, we would like to request the FSB to sufficiently respect the existing
frameworks and business practices, etc. that are already established in the industry (e.g. ISDA
Taxonomy) in considering UPI Governance Arrangements and to design a simple framework
so as to avoid overly complicating the governance arrangements and current business practices.
We consider that UPIs should accurately and simply reflect information that is truly needed forthe identification of a product. Information that is available from the other reporting data
elements than UPI, such as currencies and tenors, should refer to such elements and does notnecessarily need to be obtained from UPIs.
The more complicated UPIs become, the more the number of UPIs would be assigned,
leading to undue increases in cost and burdens arising from the UPI Governance Arrangements.
For example, a framework for ISIN required under MiFID II is extremely complicated because
there are a significant number of complicated product attributes for which a new code needs tobe assigned and financial institutions may need to obtain a UPI on a transaction-by-transaction
basis. This has imposed considerable burdens on financial institutions. In this work on theharmonisation of data elements, we strongly request to avoid suiting the rules to such aframework. We understand that some asset classes, such as securities, require detailed
information related to underlying assets. Accordingly, differences in granularities for each
asset class by stemming from existing frameworks and business practices could also be
considered acceptable.
Secondly, we basically assume the process1 whereby financial institutions obtain a UPIof a product for which banks are expected to engage in transactions and set up the UPI in its
own in-house system for transaction reporting. For complying with complicated reporting
requirements on a real time basis such as MiFID II, financial institutions need to take anoutsourcing approach2 whereby they provide details of transactions to a vendor and outsource
the operation for setting up UPIs to the vendor. We however consider that taking a policy
1

We assume the process where the Service Providers manage UPIs for each product attributes, then financial
institutions download such data to their own system and financial institutions allocate UPIs to each transaction.
2
We assume the approach where financial institutions do not connect transactions and UPIs, financial institutions
provide information of transactions to Service Providers instead, then the Service Providers set up UPI for thetransaction.

2

which is solely reliant on the latter approach would not be suitable in establishing globallyunified (or coordinated) UPI Governance Arrangements. We therefore suggest to design a
simple system that allows flexibility in taking an approach depending on actual situations ofeach jurisdiction or financial institution on a global coordination level.
Instead of relying on a complicated approach whereby operations need to be outsourced
to obtain UPIs, a simple system which is designed in a manner to secure open access to UPIs
allowing users’ discretion and at the same time to comply with national requirements, would
minimise costs imposed on each user, and facilitate the widespread use of UPIs.
Thirdly, we would like to mention that the Global Legal Entity Identifier System (GLEIS)
as one of the existing frameworks that can be referenced as governance arrangements. The
GLEIS is a framework whereby Central Operating Units (COUs) and the LEI Regulatory
Oversight Committee (ROC) supervise Local Operating Units (LOUs). Accordingly, even if
there are multiple LOUs, data is centralised by COUs and hence the GLEIS is efficiently
operated. If the UPI governance is designed in a manner following this governancearrangement, and UPI Service Providers are supervised by a regulatory body like the ROC (theexisting ROC function may be expanded to include this supervision), data can be centralisedeven if multiple providers exist due to jurisdictional-specific circumstances or for each asset
class. This approach would avoid needless cost and other burdens for users.
As such, we believe that the following elements are important for developing UPI
Governance Arrangements; i.e. the fairness of cost allocation associated with the arrangements,
free access to the UPI Reference Data Library, single UPI Service Provider structure and the
involvement of supervisory authorities and responded to the questions described below fromthese perspectives.
When implementing the UPI Governance Arrangements, we request that a sufficient
preparation time will be provided to users after the finalisation of the arrangements given thatthey will need to consider their necessary actions from practical perspectives, such as systems
development/modification.
[Our responses to questions and other comments]
1. Question 1:
Do you consider any further criteria should be included in the above list?

(Comments)“Uniform” and “unique” should be included in the key criteria.
(Rationale)
In some jurisdictions, other product identifiers (e.g. ISIN and CFI) are used in addition to
the UPI.
3

Co-existence of various code systems will give rise to overlap management which isunfavorable from the perspectives of data aggregation and costs for systems
development/modification. Therefore, it is important to duly consider that UPIs will function
as a uniform and unique product identifier.
2. Question 3:
Should the UPI System operate on a cost recovery model? If not, what is thesuggested alternative and how does it fit with other governance criteria?

(Comments)
The UPI System should operate on a cost recovery model.
(Rationale)
The purpose of implementing the UPI System is to uniquely identify OTC derivatives
products to facilitate data aggregation, and thereby enhance the transparency of the OTC
derivatives market. In light of this purpose, the FSB should ensure that excessive costs
imposed on users will not prevent the implementation of UPI System.
3. Question 4:
How should cost recovery be defined in the context of UPI? How should a UPI
Service Provider be permitted to recover its costs? Should start-up, infrastructure,and initial creation of UPI Code costs be treated differently than ongoing
maintenance and other continuing costs of operating a UPI Service Provider?

(Comments)
The “cost recovery” for continuing costs should be defined as charge made by the UPI
Service Providers to each user for the payment of the costs arising from assigning a UPI code.
The amount of costs arising at the time of start-up or developing infrastructures would
vary by users. Therefore, a reasonable amount to be charged to the users should be determined
between the UPI Service Providers and the users.
4. Question 5:
How should costs be allocated amongst stakeholders?

(Comments)
Fees to be paid by users should be based on the number of trades in reports. Furthermore,authorities should provide oversight with respect to the pricing.
(Rationale)
The cost allocation should not discourage participation in the derivatives market. To thisend, a fair fee structure is preferable and thus users should be charged a fee in accordance withthe volume of use (i.e. metered-rate system). From the perspective of clarity, a rate tableshould be clarified. In addition authorities should provide oversight with respect to specificpricing so as to prevent excessive cost allocation to the users (see our subsequent comments to4

Question 15).
5. Question 6:
How should a UPI Service Provider provide its rationale for calculating cost
recovery? What level of transparency and frequency of disclosure of cost by a UPI
Service Provider is required to demonstrate that the UPI System is being
administered on a cost-recovery basis? For example, should a UPI Service Provider
be required to undertake an audit or other type of review of its costs? To whomshould transparency be provided (e.g. to Authorities and/or the public) and underwhat circumstances?

(Comments)
The UPI Service Providers should provide its rationale for calculating cost recovery to
the users upon billing (e.g. monthly) so that the users can confirm that the amount being
charged is based on a cost recovery model.
6. Question 8:
Should access to, and use of, the UPI Reference Data Library (which includes theData Elements therein) be unrestricted? If not, what types of usage restrictions
would be appropriate and to whom should they apply? What would be theconsequences, including for harmonisation, of having usage restrictions on the UPI
Reference Data Library?

(Comments)
Access to, and use of, the UPI Reference Date Library should be unrestricted.
(Rationale)
Given that the purpose of implementing the UPI System is to enhance the market
transparency, the UPI Codes should be made broadly accessible.
7. Question 9:
Should the UPI Reference Data Library be subject to any intellectual property
restrictions? If so, what types of restrictions would be appropriate? What would be theconsequences of having any intellectual property restrictions on the use of, or access to,
the UPI Reference Data Library?

(Comments)
The UPI Reference Data Library should not be subject to any intellectual property
restrictions.
(Rationale)Intellectual property restrictions may, as a consequence, prevent the use of UPI codes.

58. Question 10:
Are there any types of ownership or membership structures of a UPI Service
Provider that could create conflicts of interest? If so, please describe.

(Comments)
If limited private-sector entities are appointed as a UPI Service Provider, it could create
conflicts of interest unless authorities fulfill an appropriate supervisory function.
(Rationale)
If a private-sector entity is appointed as a UPI Service Provider, there is a possibility ofits monopoly due to a high barrier to entry. This may lead to the entity’s undue pursuit ofprofits by using its advantageous position. Therefore, in the case of a private-sector UPI
Service Provider, an appropriate supervision by authorities should be given.
9. Question 12:
What Governance Frameworks for other universal identifiers should or should not be
considered in designing the UPI Governance Arrangements and why?

(Comments)
The Global Legal Entity Identifier System (GLEIS) should be considered.
(Rationale)
The GLEIS is a framework already operated globally and thus is worth considering as an
example of similar frameworks implemented ahead of the UPI.
10. Question 13:
Which elements of such frameworks would be useful or not useful for the UPI
Governance Arrangements and why?

(Comments)
Consistent with the GLEIS framework whereby Local Operating Units (LOUs) aresupervised by the Central Operating Units (COUs) and the LEI Regulatory OversightCommittee (ROC), the FSB should develop a framework where authorities will be involved in
the operation of the UPI Service Providers.
(Rationale)
Such a framework would prevent the UPI Service Providers from overly pursuing profits(see our previous comments to Question 10).
11. Question 14:
Do you agree with the articulated areas of governance identified above?

(Comments)
We agree with the functions related to ongoing generation of UPIs (Consultation
document paragraph 5.1) and the functions associated with the oversight of the UPI System
6

(Consultation document paragraph 5.2).
12. Question 15:
Can you suggest any refinements or modifications to any of the functions therein?

(Comments)
The FSB should appropriately oversee the implementation of the UPI System and unify
the timing of its national-level implementation.
Further, with respect to the oversight of ongoing operations, it is advisable for authorities
to oversee ongoing operations to ensure that the UPI Service Providers are not overly pursuingtheir profits.
(Rationale)
If the timing of application varies across jurisdictions, entities with reporting obligations
engaging in cross-border transactions will need to align with those jurisdictions implementing
the UPI earlier. This may give rise to market fragmentation or confusion in taking regulatorycompliance actions at their branches/subsidiaries operating in each jurisdiction.
Furthermore, lack of supervisory oversight may result in abuse of the UPI Service
Providers’ advantageous position.
13. Question 17:
Could a UPI Service Provider also be expected to develop human readable aliases
for UPI Codes to satisfy the needs of particular jurisdictions or other stakeholders?
Why or why not?

(Comments)
The UPI Service Providers should develop a UPI Code system which is human readable,
not only by particular jurisdictions but also by other stakeholders.
(Rationale)
In order to promote transparency of OTC derivatives or to represent the product in aprocess where there is human involvement, it is useful to develop human readable aliases for
UPI Codes.
14. Question 18:
Are there functions in the list which are not relevant for the UPI in your view and if so
which ones and why?

(Comments)
There is no particular function in the list which is not relevant for the UPI. The functions
listed in items (g) and (h) (e.g. consideration of reference data or related data structures, andupdates to the UPI Technical Guidance) are particularly necessary, and the FSB should
develop a framework that will ensure the effectiveness of these functions.

7

(Rationale)
Also from the perspective of avoiding undue burdens on financial institutions, those UPI
reference data items that are not truly necessary for the purposes of use by authorities should
be excluded.
15. Question 19:
Which entity or entities (or type of entity) would be best placed to perform each of theabove governance functions?

(Comments)
Public-sector entities, such as the FSB, should perform the governance functions of the
UPI System.
(Rationale)
If the governance functions of the UPI System are not performed by any public-sector
entities but are completely entrusted to a private-sector entity (or entities) instead, that entity(or entities) may capitalise on its advantageous position to overly pursue its (their) profits.
16. Question 21:
What benefits of implementation of the UPI, if any, do you see beyond OTC
derivatives reporting? Please justify your answer.

(Comments)
At the moment, we do not see any particular benefits for the users other than thepossibility of the use of the UPI for the TR reporting data.
(Rationale)
While the assignment of the UPI would uniquely identify OTC derivatives products tofacilitate data aggregation, and thereby would enhance the transparency of the OTC
derivatives market, the private sector has not identified any other particular benefits at the
moment.
17. Question 23:
What would be the impact on market participants and other key stakeholders of
having multiple UPI Service Providers (whether across asset classes or serving thesame asset class) in terms of:(a) cost;(b) ease of use of the UPI System;(c) their ability to conform to the UPI Technical Guidance; and(d) their ability to associate UPIs with products in a timely manner at least to facilitate
the discharge of reporting obligations for OTC derivative transactions?

(Comments)
If multiple UPI Service Providers are to be established, the following issues would arise
8unless there are appropriate oversight by authorities, mutual coordination among Providers,data centralisation and database sharing.
(a) Cost(Comments)
Having multiple UPI Service Providers would increase costs incurred by market
participants and other key stakeholders.
(Rationale)
If multiple UPI Service Providers are established, such a situation will give rise tocosts associated with oversight of UPI Service Providers, data synchronization andestablishment of a UPI Reference Data Library. Furthermore, there is a possibility that the
UPI System itself may not function effectively, as overlapped UPI Codes may be
assigned.
In order to realize enhancement of the quality and reduction of the cost of UPI
Service Providers, the FSB should prioritize on the consideration of realizing a framework
for the supervision by authorities. Even in the case of single UPI Service Provider, with
the involvement of authorities, it would be able to enhance the Service Provider’s quality
and at the same time realize the minimal cost based on the concept of the cost recovery
model.
(b) Ease of use of the UPI System(Comments)
It would be less easy to use the UPI System.
(Rationale)
If there are any changes made on the guidance level and if the timing of theirimplementation or the timing of actions to address such changes varies by UPI Service
Providers, this will make the use of the UPI System less easy.
(c) Their ability to conform to the UPI Technical Guidance(Comments)
The ability of UPI Service Providers to conform to the UPI Technical Guidance will
decline.
(Rationale)
If there are multiple UPI Service Providers, consistency, interpretation andcapabilities of approaches, including practices, will differ by UPI Service Providers. As aresult, the ability to conform to the UPI Technical Guidance would decline.

9(d) Their ability to associate UPIs with products in a timely manner at least to facilitate
the discharge of reporting obligations for OTC derivative transactions(Comments)
The ability of UPI Service Providers to associate UPIs with products in a timely
manner would decline.
(Rationale)
Where multiple UPI Service Providers exist, unless databases are shared between
them, it is difficult for a UPI Service Provider to associate a UPI assigned by another UPI
Service Provider with products in a timely manner.
18. Question 24:
Should one or a limited number of UPI Service Providers be selected at the outset?
Should the UPI Governance Arrangements allow for additional UPI Service
Provider(s) to be incorporated over time?

(Comments)
Only one UPI system should be established. At the same time, similarly to the GLEIS
framework, an appropriate oversight by authorities should be implemented.
(Rationale)
If multiple UPI Service Providers are selected and the coding system or the operational
flow differs by these providers, it may give rise to confusion in the use of UPIs. Meanwhile,
UPI Codes should be assigned based on a single system even if UPI Service Providers differ
due to jurisdictional-specific circumstances or for each asset class.
19. Other comments(1) Design of the reporting flow
(Comments)
The UPI reporting should be performed by one side of the parties to the transaction. If
both parties to the transaction will be required to report the UPI, it would be important todevelop a reporting flow (framework) which ensures that both parties appropriately report thesame UPI. A framework where the sell-side participant applies for issuance of a UPI Code andnotifies the code to the buy-side through confirmation or by other means would align withbusiness practices. Given this, the FSB is requested to design a framework which clarifies theentity assigning a UPI Code and enables straight through processing from the earlier stages of
the transaction.
(2) Data subject to reporting(Comments)
If data elements are required beyond those elements each reporting entity holds, practicalburdens and systems development cost will increase, making it difficult for market participants10

to take uniform approaches. Therefore, for the purpose of reporting the UPI and relevant data
elements, the FSB is requested to give due consideration to reporting entities so that they will
be able to comply with the requirements using those data they currently hold.
(3) Compatibility between global harmonisation and respect for each jurisdiction’s nationallaws/business practices(Comments)
When initiating the new framework in multiple jurisdictions simultaneously, the basic
design of the framework (e.g. covered products) should be standarised to the extent practicable.
Nonetheless, since variation would arise due to different laws and business practices acrossjurisdictions, the framework should be implemented in a way that is in line with actual roles
and functions based on applicable legislation and practices (for example, in the case ofinvestments trusts in Japan, data held by the trustee bank mainly consists of management dataassociated with custody/settlement, etc. because the investment manager undertakes
management activities of investments and transactions).

11