Legal Entity Identifier: What Is It And What Is It Used For?

A lot of people are not familiar with this term, so today, we are going to discuss this topic more. So what is Legal Entity Identifier, or short for LEI? Namely, it represents a code or a number that works as an entity registration number or international business.

Many corporations and banks can utilize Legal Entity Identifiers to identify numerous legal entities, such as various institutions, organizations, companies during a financial transaction, like bonds, forex, trading, etc. 

If you now have a clearer picture of what it is, yet you’re yearning to find out more, then just scroll below and you’ll be provided with some useful information.

All You Need To Know About Legal Entity Identifier

When Can It Be Used?

As it was mentioned in the beginning, the LEI system allows global tracing of different financial transactions and enables the identification of some legal entities and the ones who own them. The Legal Entity Identifier allows this by offering a global reference system and standardized information.

Now, if companies want to utilize it, do they need the LEI registration? The answer is yes. Namely, the Reserve Bank of India, along with many others, has made LEI registration mandatory for institutions and companies that are having non-fund-based and fund-based exposure of credit that’s more than Rs 50 crore. Now, many are wondering why LEI was established in the first place.

It was created ten years ago as a result of the huge global crises that occurred between 2007 and 2008. The whole point of it was to develop transparency within transactions and financial systems to prevent any form of financial fraud and money laundering. 

Three Important Authorities

Furthermore, another purpose of it is the regulation of numerous financial elements within jurisdictions that employ the Legal Entity Identifier system. Usually, the control and monitoring of this system are divided into three authorities.

The goal of this is to make sure that the system stays reliable, transparent, and credible. What are those three systems?

  • GLEIF (Global Legal Entity Identifier Foundation) represents a non-profit company that coordinates and deals with LEI numbers
  • ROC (Regulatory Oversight Committee) can be defined as a committee that consists of supervisory authorities that support the governance principles and supervise the Global LEI System.
  • LOU (Local Operating Unit) is a Legal Entity Identifier issuing institution that provides legal entities with LEI codes

Is It Beneficial For The Industry?

The answer is yes. As time goes by and more and more companies start using it, it is going to cut costs and at the same time enhance risk management across the financial system, as well as for individual companies.

Furthermore, these reductions will come from decreasing transaction failures, reducing data reconciliation, aggregation, and cleaning expenses. This just goes to show that this type of system is going to create long-lasting benefits for numerous companies all over the world. 

Even though you may have never heard of this system, and you weren’t sure what its purpose is, it is easy to conclude that a Legal Entity Identifier is more than useful and according to many, something that will potentially save the financial sector.

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