A most significant global institution, the G20, made up of the sovereign heads of the 23 largest global economies, late last year formally accepted the responsibility of creating a global identification system for financial market participants and the financial products they trade in.

Following up on that decision, individuals from over 100 regulators, central bankers, financial industry members, trade associations, thought leaders, technology companies, standards groups, financial market participants, auditors, consultants and data vendors from around the world convened around the G20's Financial Stability Board table at a workshop in Basel, Switzerland last week to take this up on a global level. Its aim was to provide input to the recommendation on establishing what has been referred to as the legal entity identifier. This is to be decided at the G20 leaders' summit coming up in June in Mexico. Who administers the standard, how it is defined and how it is implemented are all under consideration.

What is clear to all is that this effort is critical to being able to analyze systemic risk by aggregating risk data from multiple financial institutions. It should finally allow regulators to see that which they are mandated to oversee. In the end regulators are seeking an ability to prevent, or at least judge when another financial crisis is imminent.

In today's globally interconnected financial system, companies and the products they trade are represented by hundreds of different naming conventions depending on which market their financial instrument trades in or from which private database a vendor transmitted a piece of corporate information. What regulators around the globe are seeking is a single uniform identification system. The G20 leaders are intent on giving regulators this important new tool

The proposed global identification system will be a number assigned to every market participant, whether a corporate issuer of securities; a counterparty in a swap or foreign exchange transaction, a named reference entity in a credit default swap, or a sponsor of a pension plan.  The unique identifiers will be transported via a "bar code like" device, the data tags that will surround the identifiers in computer files and in communications messages. These data tags are referred to as XML (eXtensible Markup Language) tags, best understood by observing their mandatory use in regulatory financial statement filings such as in the SEC’s mandatory filing standard XBRL, the business reporting variant of XML.

The SEC's 10k filings and similar documents are now required to be filed in XBRL. This allows documents to be placed on the Internet in elemental form so computers can find any field of information. This process has yet to be initiated for such documents as articles of incorporation, offering documents of derivatives products or for loan origination documentation.

Both a unique identifier and associated data tags are needed to enable computers to first find and then understand what financial institution or product is being referred to in electronic transmissions of financial transaction data. These are the most basic of foundational elements necessary to aggregating data across global financial institutions in order to observe the contagion of systemic risk.

Such a financial industry identification and tagging scheme should become as foundational and have as profound an effect on financial trade as the creation of unique numbering systems had in other industries. The phenomenon of such innovations as the Internet's order-to-ship-to-deliver-to-pay process; the economic scale of Amazon and Federal Express and Walmart; and the ubiquitous smart phone scans at airline counters and checkout counters are all enabled by a simple unique computer readable numbering convention. Digitized technology advances were also enabled by unique computer readable numbering conventions: in an internet address; in the global positioning satellite coordinate system; and in the global mobile phone network's calling scheme.

In taking up the implementation of this issue the G20 will, for the very first time, be stepping into the back room debate on how to fix the basic pillars on which the information based, technology driven financial system is built upon. The G20 appears to have risen to the occasion so that all proclamations to come on how to risk adjust the financial system will be built atop a solid foundation. On to the G20 Summit this June with great hopes for those who toil in the back room.

Allan D. Grody is the president of Financial Intergroup Holdings Ltd. He is a founding editorial board member of the Journal of Risk Management in Financial Institutions.