LEI, the short form of Legal Entity Identifier, is a unique 20-digit number or code given to legal entities that engage in financial transactions. This 20-digit number is unique because it can be identified on a globally accessible financial database. This LEI code or LEI number cannot be obtained by any individual; rather, this number is provided or issued to non-individual entities only. In other words, this code is issued to financial companies, organizations, large corporations, funds, government entities, etc. Basically, the term “legal entities” incorporates all those entities that compete in the financial market. Each company is given a unique LEI number or an LEI code that connects to information related to the entity itself. Information such as the name of the company, the ownership of the company, the director’s name and contact number/Email address, the CEO’s name and contact number/Email address, the name of the parent company, etc.
How it began?
The Legal Entity Identifier (LEI) system was developed in 2011. The 2008-2009 Global Financial Crisis was what led to the formation of the LEI system in the first place. LEI database is a publicly available financial database that acts as a “global financial directory” in the financial market. Since financial transactions between different companies take place in massive amounts, the need for the regulation of these financial transactions has become all the more important.
Benefits of this system
Some of the benefits associated with using and applying the LEI system in the financial market are as follows:
- It makes the identification of financial companies and big corporations easier.
- Financial transactions become transparent. Financial transactions prevent mismanagement of finance.
- It reduces risk exposure. It helps in risk management.
- The LEI system allows financial transactions of the companies involved to be tracked.
Status all over the world
Many countries like the United States and the European countries have made LEI mandatory for financial companies operating within their jurisdiction. The companies that operate within the United States and the European countries require an LEI code if they want to continue engaging in financial transactions. Without an LEI, no company is allowed to engage in financial transactions.
Global Legal Entity Identifier Foundation (GLEIF) is primarily responsible for monitoring the operations of the Local Operating Units (LOUs) and maintaining the integrity of the LEI system. Local Operating Units (LOUs) are responsible for issuing and assigning LEI codes to companies that operate within a particular jurisdiction. Each jurisdiction contains at least one LOU. The LOUs have to be accredited by the GLEIF.
An authorized representative of a company has to fill the LEI application process or the LEI registration process in order to obtain an LEI. LEI can also be obtained through third-party agents such as LEI registration agents. LEI registration agents facilitate the whole registration process. The validity period of an LEI is 1 year. When the validity period of LEI ends, it has to be renewed again. Thus, LEI has to undergo a renewal process every year. The LEI code remains the same even after its renewal.