What is an LEI and is it important?

23 Jul What is an LEI and is it important?

Legal Entity Identifier or LEI was introduced after the global financial crisis in 2008. It came into effect on 3rd January 2018 under the MiFID II directive. The aim was that all participants in the financial system would be identifiable to facilitate monitoring of worldwide financial transactions.

An LEI is a unique 20-digit alphanumeric code which is specific to legal entities including investment firms, corporations, charities, and trusts.

It requires all legal entities to hold an LEI if transacting reportable instruments in a global environment.

In other words, if an organization need to access financial markets, manage investments, cash flow, or hedge risks like interest rates, exchange rates or commodities, you must register with LEI.

The Importance of using an LEI

The rules under LEI cover a range of financial instruments. Which includes shares, bonds, Collective Investment Schemes, and derivatives.

If you are a citizen of the UK and looking to purchase commercial products on your own, your financial service provider will need your National Insurance number. Citizens of other countries will have to provide any other form of unique identification. You don’t need to have an LEI number if trading as an individual.

The financial service provider will need you to provide the Legal Entity Identifier if you are any one of the following :

1. Corporate entity
2. Public body
3. Council
4. Charity
5. Trust.

Your financial service provider or you will not be able to execute transactions in the UK or within the European Union if you do not have an LEI.

Before the Global LEI System came into place, each country was responsible for implementing its own framework to track financial transactions. Such a global arrangement had resulted in making it impossible to trace international transactions. This also led to many fraudulent activities and cyber finance crimes.

Ultimately, this meant that policymakers and private parties were unable to adequately or accurately assess risk and exposure.

The many shortcomings were addressed by the introduction of the LEIs. The LEI Regulatory Oversight Committee (LEI ROC) was established next.

The objectives of the LEI ROC are:

1. To ensure access to publicly available data.
2. To facilitate access for entities hoping to acquire an LEI.
3. To make sure that the broader public interest is kept in mind and heart of the global LEI framework.
4. To ensure the global LEI system meets widespread public and private requirements.

How does the LEI work in the UK

London Stock Exchange is accredited by the Global Legal Entity Identifier Foundation (GLEIF) as an authorized Local Operating Unit (LOU) for the global allocation of Legal Entity Identifiers (LEI). London Stock Exchange issues LEIs to legal entities using the requirements set by GLEIF and the agreed principles outlined by the LEI Regulatory Oversight Committee (LEI ROC).

The London Stock Exchange has been doing great as the LOU, with all the LEI data in one place, with a user interface easy to access.

The data thus provided is accurate and reliable as the database is updated regularly.

Overall, while it is mandatory to have an LEI if you are transacting in the UK or anywhere in the European Union, it has only improved the efficiency in tracking global transactions.

Use of LEI has helped in curbing frauds and has brought in more transparency to the anti money laundering industry as most entities are now required to provide their LEI number at the time of Onboarding.

At KYC Lookup you can now search the full catalogue of LEIs, its completely FREE to use.