Legal Entity Identifier (LEI) is a code that is unique to a legal entity such as a limited company, fund or trust, or an organization. The LEI code consists of a combination of 20 characters and numbers (see LEI structure here). This code allows each entity to be identified by number instead of a name in the global database of searchable entities, as multiple entities may have the same or identical names. Visit leiservice.com to know more.
Public data in companies’ LEI records such as their name, address, where they are registered, and whether they are a branch, or will be owned by another ‘parent’ company.
Importance of LEI system
1- Previously, it was very difficult to find a counterpart if they did not have a digital presence. This became a problem in the global financial crisis a decade ago.
2- Lack of transparency has weakened financial institutions as a large number of institutions and funds were unknown. In addition, it created complications related to risk assessment and transparency.
Where do LEI numbers come from?
After the G20 enacted the Legal Entity Identification (LEI) Code, the Financial Stability Board (FSB) appointed a new regulatory body to enforce it. This organization is known as the Global Legal Entity Identifier Foundation (GLEIF).
What are the benefits of having LEI?
Having an LEI number, or LEI certificate instantly enhances your international identity and business credibility. Investors, consumers and potential stakeholders can access your desired LEI data in real-time. Similarly, you can take advantage of the extra layer of security that comes from knowing what you’re dealing with.
No LEI = no trade
One of the most important of these regulations is the MiFID II / MiFiR, which went into law on January 3, 2018. As a result of the regulation, competent EU national authorities now have the right and responsibility to refuse trade between investment firms and them. Customer when there is no LEI on either side of the transaction.
What is LEI good for?
Now that we have answered the question, “What is LEI”, the next question is:
What is LEI good for?
The LEI system enables the tracking of global financial transactions and allows easy identification of legal entities and their owners. LEI enables it by providing standardized information and a global referral system.
The LEI system was developed in 2012 as a result of the 2007-2008 global financial crisis. It aims to create transparency in the financial system and transactions to prevent money laundering and financial fraud.
The three officials are as follows:
ROC (Regulatory Oversight Committee): A committee consisting of supervisors. Officialswho uphold and oversee the principles of the global LEI Governance System
GLEIF (Global Legal Anti-Identifier Foundation): a non-profit organization that Coordinates and manages LEI numbers.
Lou (Local Operating Unit): LEI issuing organization that issues LEI code Legal entities
CONCLUSION
Legal entities involved in financial transactions or operations within the financial system are the primary users of LEI. So if you are transacting in the global financial system, it is more likely that your US company will need to get an LEI number.
