What is LEI Code?
The Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code that reflects key information about legal entities participating in financial transactions.
All issued LEI codes are publicly available and make part of the global directory, considerably enhancing transparency of the financial system by documenting who is who in the global financial markets. Also, each LEI reflects information about an entity’s ownership structure, unambiguously demonstrating who owns whom in each financial transaction. To ensure quality of financial data, LEI Regulatory Oversight Committee was established as a body which registers and regularly verifies the data in accordance with strict rules and procedures making sure of its integrity, reliability and usability.
For quick LEI code registration fill in the simple registration form.
How it All Started
Global financial markets are vast. NYSE alone has over 2400 companies listed, and that is only one stock exchange. Organizations themselves are growing ever more complex, creating an entangled network of related entities. The challenge to identify who’s who, who owns whom, and who owns what is real. And mistakes are costly and hard to correct.
Never was this challenge more obvious than when the financial crisis hit. When Lehman Brothers went bankrupt in 2008, signifying the start of what went on to be the biggest financial crisis in decades, regulators and financial institutions across the globe struggled to assess quickly the full extent of the market’s exposure to the failing bank and contagion of the global financial markets. Why did this happen? The global financial system became more complex with the vast network of market participants linked to one another, but the financial data systems did not keep up with the pace of increasing complexity. Disentangling the enmeshed network of market participants which were affected by Lehman’s failure was a challenge. As the crisis unraveled, the problem spread to other entities affected by the bank’s bankruptcy as the wildfire, laying bare the weakness of the global financial system. It underscored the urgent need for a unified global system which will enable both regulators and the private sector to uniquely and unambiguously identify financial connections between market participants to better understand their true individual risk exposures and that across the whole of the financial system.
The first necessary step for this is to secure unique identifiers for all legal entities that participate in financial transactions. This is how LEI was created. Now embedded into EU legislation governing financial markets (widely known as MiFID, or the Markets in Financial Instruments Directive), the LEI enables clear and unique identification of legal entities participating in financial transactions by connecting to key reference information.
More about US & EU LEI Regulations.
How Does LEI Work
How to Get a LEI?
LEI codes are issued by an approved local operating unit (LOU) since international business practices and frameworks can vastly differ across jurisdictions and local knowledge of corporate organizational frameworks, business practices and infrastructure is critical in assigning codes that will reflect all the relevant information about business entities.
When you need to get a LEI code, LOU issuers you will need to find one of these issuers who act as the main point of contact for legal entities intending to get a LEI code. Obtaining a LEI from any local operating unit requires the payment of an initial registration fee, after which an annual maintenance fee is regularly paid. All fees are intended to cover LOU’s operating costs and a portion of those fees are shared with the nonprofit Global LEI Foundation.
Who is Required to Have a LEI?
Every legal entity that intends to participate in a financial transaction is eligible for an LEI. In Europe, it is a requirement for all entities who are party to a financial transaction regardless of their origin. This means that if you are a US bank wishing to enter into a securities trading on a European stock exchange, you will need to get a LEI before that being allowed to trade.
What information LEIs reflect?
Each LEI code reflects the following information about the entity it is assigned to: registered address, country of incorporation, date of lei code issuance and renewal and date of expiration.
Benefits of LEI Codes
How LEIs Create Value For Organizations Across the World.
Although LEIs bring immense benefits in assessing the overall risk exposures across the markets, and as such their origins trace back to international initiatives of financial regulators, there is also a strong business case for the private sector to embrace these unique identifiers. The case is growing stronger with the digitization efforts that are spreading across the global business environment.
In a data driven world, having access to reliable data is paramount. Automation and efficiency gains based on it, drives ROI and competitive advantage, enabling organizations to stand above the competition. However, for automation to be possible, financial data must be available, reliable and usable.
The first step in the process of securing reliable financial data is to identify parties in a financial transaction. However, in a complex business world identity identification and verification is often a time-consuming, costly and complex task. For example, large international banks may have thousands of legal entities operating around the world. Although growing ever more complex, they still tend to keep their data in silos. This data is usually spread across different databases and platforms, each with its own set of identifications. This approach vastly hinders data reconciliation across the whole of organization. In the past, collecting and collating this disparate data across organizational parts, markets and geographies was painstakingly slow, pulling resources that could have been employed elsewhere.
But now there is LEI. As a unique global identifier that reliably identifies all parties in the financial transaction, LEI code enables organizations to raise operations efficiency while increasing integrity and security of financial transactions.
Impact of LEI on ROI is massive. A recent McKinsey study estimates that in client onboarding alone, financial services could save around 5-10% costs. But benefits of LEI adoption go beyond client onboarding into other client lifecycle stages. For example, by dramatically simplifying entity identification and verification LEIs enable better decisions about who to do business with while introducing clarity and reliability to transacting, compliance reporting and risk monitoring.
Used across markets and jurisdictions to uniquely identify a legal entity that engages in a financial transaction, LEI is an essential part of the global financial transaction. LEIs create value in every process that requires identification and verification of a counterparty. They take ambiguity out of financial transactions introducing security and reliability to ensure efficient and safe transacting across the globe. Data reported externally to supervisors and used internally for risk management purposes are more consistent and usable.
With LEIs, the private sector won’t waste time and money when making a transaction due to an inefficient process.
If you intend to enter into a financial transaction, make sure to obtain LEI to ensure more reliable information but also to leverage operational efficiencies, cost savings and reduction of time to transact with clients that are brought by these unique identifiers. Fill in the simple registration form and get a LEI code in as little as a few hours. Start your financial transacting journey with peace of mind and confidence.