Legal Entity Identifier

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The Legal Entity Identifier (LEI) is unique global identifier of legal entities participating in financial transactions. These can be individuals, companies or government entities that participate in financial transaction. The identifier is used in reporting to financial regulators and all financial companies and funds are required to have an LEI.

The identifier is formatted as a 20-character, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). It connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of 'who is who’ and ‘who owns whom’. Simply put, the publicly available LEI data pool can be regarded as a global directory of participants in the financial market.

There are a number of LEI issuers around the world that issue and maintain the identifiers and act as primary interfaces to the global directory, these are typically financial exchanges or financial data vendors. These are accredited by the Global Legal Entity Identifier Foundation (GLEIF) to issue LEIs.

History[edit]

At the time of the financial crisis of 2007–2008, regulators realised that a single identification code unique to each financial institution was not available worldwide. It means that each country had different code systems to recognize the counterpart corporation of financial transactions. Accordingly, it was impossible to identify the transaction details of individual corporations, identify the counterpart of financial transactions, and calculate the total risk amount. This resulted in difficulties in estimating individual corporation's amount of risk exposure, analyzing risks across the market, and resolving the failing financial institutions. This is one of the factors that made it difficult for the early evolution of the financial crisis.

In response, the LEI system was developed by the 2011 G20[1] in response to this inability of financial institutions to identify organisations uniquely, so that their financial transactions in different national jurisdictions could be fully tracked.[2] Currently, the Legal Entity Identifier Regulatory Oversight Committee (LEI ROC), a coalition of financial regulators and central banks across the globe, is encouraging the expansion of the LEI. In a firsth moment, the U.S. and European countries required corporations to use the legal entity identifier when reporting the details of transactions with over-the-counter derivatives to financial authorities. As today, authorities of 45 jurisdictions mandate the use of LEI code to identify legal entities involved in different financial transactions.

The first LEIs were issued in December 2012.[3]

Code structure[edit]

Structure of LEI codes
1 2 3 4 5 6 7 8 9 ... 18 19 20
LOU
code
Res-
erved
Entity-
Identification
Check-
sum
G.E. Financing GmbH
5493 00 84UKLVMY22DS 16
Jaguar Land Rover Ltd
2138 00 WSGIIZCXF1P5 72
British Broadcasting Corporation
5493 00 0IBP32UQZ0KL 24

The technical specification for LEI is ISO 17442.[2] An LEI consists of a 20-character alphanumeric string, with the first four characters identifying the local operating unit (LOU) that issued the LEI. Characters 5-18 are the unique alphanumeric string assigned to the organisation by the LOU. The final two characters are checksum digits.[4]

Even the LEI Code of an entity follows the technical ISO specification, the LEI Code by itself does not provides any valuable information, it is only used to uniquely identify each legal entity.

Global Operating System[edit]

G-20
FSB (Financial Stability Board)
LEI ROC
GLEIF

- Board of Directors

LOU 1, LOU 2, LOU 3 ...

[5]

  • G20: An international organization consisting twenty major countries (ninety per cent of the world's GDP) comprising seven developed countries (G7), the chair countries of the European Union, and twelve rising nations.
  • Financial Stability Board: An organization founded to enhance the stability of the global financial system and to oversee international finance.
  • Regulatory Oversight Committee: The best decision making organization for LEI Systems under FSB. The forty countries' financial authorities, the central bank, and IMF are represented as members by international organizations.
  • GLEIF (Global LEI Foundation): Responsible for controlling the LOUs in each region as a practical operating organization within the LEI system.
  • Local operating units: As the operating organization for issuing and maintaining the LEI code in each region, 31 LOUs are currently active worldwide.

Need of LEI[edit]

  • Who should have LEI?[6]

Both corporations and funds involved in financial transactions need the LEI. LEI is an identification code designed to recognize all of the entities and funds involved in financial transactions worldwide. Therefore, all corporations and funds that participate in financial transactions should be issued LEI.

  • When is an LEI needed?

In the United States and Europe, the parties to the transactions must use the LEI to report to the supervisory authorities any out-of-books derivatives transactions. Recently, it has expanded their coverage such as alternative investments, fund investments, insurance, spot markets, pensions, logistics and bids.

Obtaining a Legal Entity Identifier[edit]

The Global Legal Entity Identifier Foundation (GLEIF) is not directly issuing Legal Entity Identifiers, but instead delegates this responsibility to local operating units (LOUs). These LEI issuers supply different services. Local operating units can have different prices and LEI issuing speed for the registration services they offer. The LEI can be obtained from couple of hours to days or weeks, depending on the service provider. LOUs can also work together with official Registration Agents who offer LEI registration services and ease the process of obtaining an LEI for the legal entity. GLEIF is responsible for monitoring LEI data quality and integrity of the LEI system.[7]

Advantages of LEI[edit]

  • In financial transactions, you can reduce the risk associated with the counterpart. You can measure the total risk of the other party. You can also determine the risk of a particular trading partner's concentration.
  • You can reduce the cost of reporting tasks. Financial transactions reduce the costs of information gathering and administrative costs to the other party. You can also reduce the cost of various reporting tasks, such as reporting the details of out-of-court derivatives transactions and reporting of the regeneration and cleanup plans.
  • You can enhance market transparency. As LEI is a code of international currency, it is easy to detect market manipulation, financial fraud and other disruption acts through the sharing of international financial transaction information.

See also[edit]

Other formal authority UID in legal context:

References[edit]

  1. ^ "What is the LEI system?". Open LEIs. Retrieved 26 May 2016.
  2. ^ a b "The Legal Entity Identifier (LEI) Is Good News for Financial Technology Developers". Data.gov. Retrieved 26 May 2016.
  3. ^ "Legal Entity Identifier Resource Center". Sifma. Retrieved 26 May 2016.
  4. ^ "The Structure of the LEI Code". GLEIF. Retrieved 26 May 2016.
  5. ^ "Korean Securities Depository".
  6. ^ "Characteristics of LEI".
  7. ^ GLEIF. "How to Get an LEI: Find LEI Issuing Organizations – About LEI – GLEIF". www.gleif.org. Retrieved 2017-10-18.

External links[edit]