Brief Introduction to LEI
In this article, we will go through a brief educational overview of the LEI, its origins, current usage, and future speculations. The LEI is currently being adopted globally and quickly becoming the single most important identifier in the global financial ecosystem. The LEI has far-reaching benefits, not only increasing transparency in capital markets but also banking, KYC processes, client onboarding, and even anti-money laundering.
What is a Legal Entity Identifier?
The very first question that comes into everyone’s mind is What is LEI?. A Legal Entity Identifier (LEI), is a code that is unique to a legal entity such as a Limited Company or Fund. This code consists of a combination of 20 letters and numbers. The LEI is an ISO standard, which is now a legal requirement for many companies within the global financial system.
The LEI offers accurate data about a company by searching for them on the LEI index. A company’s LEI record will contain public data such as their name, address, where they are registered, what type of business they do and whether they are a branch, or owned by another ‘parent’ company.
What is the importance of a Legal Entity Identifier?
Previously it was very difficult to find out about a counterparty if they had no digital presence. This became problematic in the global financial crisis a decade ago. The lack of transparency put financial institutions in a vulnerable position as vast numbers of entities and funds were unidentifiable. Also, this created complications relating to risk assessment and transparency.
The G20 launched the LEI system in 2011 to ensure this would never happen again. The idea was to create a digital database, of all legal entities which were easily accessible, accurate, and up to date. One centralized source of information, that contains vast amounts of attainable, high-quality data.
Who needs Legal Entity Identifier?
LEIs are required by any legal entity that is involved with financial transactions or operating within today’s global financial ecosystem. There are several mandates currently in existence which state “no LEI, no trade” meaning both reporting parties and traders require an LEI. The LEI is mandated by several EU directives such as EMIR, MiFIR & MIFID II. The US also has similar requirements such as the Dodd-Frank Act, the OFR, the Federal Reserve, and the Securities & Exchange Commission (SEC).
What are the benefits of Legal Entity Identifier?
Your international recognition and trading credibility are increased immediately. Investors, customers, and potential stakeholders can locate your essential data in real-time. Likewise, you can benefit from the added layer of security that comes from knowing exactly who you are dealing with.
Whether you are a financial institution acting on behalf of your clients or require an LEI for your company you can obtain an LEI which will reap you many benefits. The process is very simple and you can take help from a consultant to guide you through the entire process and suggest an LEI solution that is specific to your business needs.
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