A Legal Entity Identifier is a 20-character alphanumeric string that is unique. The purpose of an LEI is to identify transacting parties inside financial systems and to define a Legal Entity such as a corporation, organization, firm, government entity, trust, fund, etc on a global scale. The Legal Entity number can be used to represent the Legal Entity in financial transactions or other situations that require verified organization IDs once it has been granted.
Where do LEIs have to be used?
The LEI has been endorsed by an organization that supports financial stability in collaboration with central banks, ministries of finance, and national financial regulators.
What is the purpose of the LEI in the global market?
Following the Worldwide Financial Crisis, it became clear that doing business with new entities without the companies’ web presence and unstandardized global identification procedures was a difficult task. It was critical not just to conduct international commerce without fear of fraud and money laundering, but also to identify counterparties in transactions and ensure their identities. Financial institutions found it time-consuming and difficult to give transparency and keep track of questionable transactions, which led to an increase in online theft.
What is the procedure for obtaining an LEI?
LEIs can only be issued by organizations that have been accredited by the GLEIF. Local Operating Units (LOUs), or issuing entities, provide LEI number registration, renewal, and related services in numerous countries throughout the world. Applicants can choose from over 30 LOUs across the world to get an LEI. To apply, an authorized person of the legal entity would supply the LOU with accurate reference data about the legal entity, such as the entity’s official name, registered address, and business registry information, as well as information on the applying legal entity’s direct and ultimate parents. The LOU will verify that the party submitting the application is entitled to do so, and will cross-check the reference data provided with local registration authorities, such as business registers.
The length of time it takes to process an application varies by LOU, but in general, an LEI is issued within a few days of submission.
What role will LEIs play in the future?
Various local and global requirements, as well as new payment standards in the Digital Certificate standard, drive the use of identifiers. The objective of concerned organizations is to be a certified Legal Identity Identifier issuer. Individuals, companies, and things are the three identity domains for which we are developing services to automate interactions and assurances. LEIs are the ideal answer for improving KYC, digital assurance, and other difficulties that are connected with less standardized and mature enterprises.
Conclusion
An LEI can be applied for by any entity that can be deemed a “legal entity.” The LEI system will become more severely regulated as internet trading grows and we become more digital , and a number of factors will boost LEI adoption rates. There are now 1.8 million LEIs in use, with the GLEIF predicting that by 2027, there would be up to 20 million.