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Why It Is Time To Obtain a Legal Entity Identifier (LEI)

Why It Is Time To Obtain a Legal Entity Identifier (LEI)

What is LEI

The LEI (Legal Entity Identifier) is a unique 20 character ISO identifier for a legal entity that participates in a financial transaction. Once a legal entity obtains an LEI code, the code stays with the legal entity for its presence.

Each LEI contains information about an entity’s ownership structure and thus answers the questions of who is who and who owns whom. The publicly available LEI data pool acts as a global directory, which significantly enhances transparency in the global marketplace.

Regulations surrounding LEI

The Financial Conduct Authority (FCA) have worked together with the European Security Markets Authority (ESMA), because of which the requirement to obtain Legal Entity Identifiers are entering a number of EU and UK regulations, many of which affect companies from all over the world if they wish to trade in the EU financial market. The regulations and directives all aim to increase market transparency and decrease market degradation to reduce the possibility of another critical market crash like the one in 2008.

The European Banking Authority (EBA) finalized the technical standards on supervisory reporting which recommended that all competent authorities use a single identifier for each credit and financial institution. The recommendation supported adoption of LEIs proposed by the Financial Stability Board (FSB), who were established at the G20 in April 2009.

Not only has the European countries affected, regulators around the globe, including the Commodity Futures Trading Commission, Securities and Exchange Commission, Reserve Bank of India, and a few Canadian provincial regulators already require or will require legal entities to obtain an LEI. MIFID II/MIFIR and EMIR will also affect non-EU market participants in numerous ways.

A full list of regulations that mandate the use of LEIs, and global initiatives that recommend their use, is provided by the Global LEI Foundation.

How to register for LEI

  • LEIs are issued by the Local Operating Units (LOUs) of the Global LEI System.
  • The list of LOUs accredited by the Global LEI Foundation can be found on the GLEIF website.
  • Some of these registries serve a given country while others offer services to entities worldwide.
  • The legal entity should be eligible to receive an LEI based on certain criteria. The corporate borrower or legal entity can also register for LEI via an agent. On applying the LOU will collect a minimum set of reference data. This reference data has to be confirmed or certified by the entity seeking an LEI. Entities are also requested to periodically verify the continued accuracy of their reference data by renewing annually.

The LOU is required to check each entry against reliable sources prior to publishing the LEI and associated reference data.  All the LOUs have to operate under accreditation by the GLEIF.

Why is it important

The LEI provides a unique identifier for all entities participating in financial transactions that

can also be used on a cross border basis, through a free and open database updated regularly. This general structure is essential to identify each exposure for risk management of financial transactions and to create transparency.

The use of the LEI also generates tangible benefits for businesses including simplified regulatory reporting, database management, accurate calculation of

counterparty exposures, improved risk management, and increased operational efficiencies.

It is the need of the hour and a mandatory step if you want to trade globally. Have you got your LEI yet?

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