What is Legal Entity Identifier (LEI)?

What is an LEI?

The Legal Entity Identifier (LEI) is a 20-character, alphanumeric code based on the ISO 17442 standard, uniquely identifying legal entities involved in financial transactions. It connects to key reference information, promoting transparency in the global marketplace.

Structure and Components

An LEI code is structured to include:

• Characters 1-4: Identification of the Local Operating Unit (LOU) that issued the LEI.
• Characters 5-6: Reserved characters, always set to zero.
• Characters 7-18: Unique alphanumeric string assigned to the entity.
• Characters 19-20: Check digits for verification.

MNS's Legal Entity Identifier (LEI): 335800A8BMKQJ84CVX34

Why is the LEI Important?

1. Transparency: The LEI helps regulators, investors, and other stakeholders verify the identity of entities involved in financial transactions. This leads to a more transparent financial system.

2. Risk Management: By providing a standardized way to track entities across markets, the LEI helps identify risks and monitor the exposure of market participants. It enhances the ability to manage systemic risk in global financial markets.

3. Regulatory Compliance: Many regulatory frameworks require the use of the LEI for financial reporting and transactions. This is particularly true in the European Union, under regulations like EMIR (European Market Infrastructure Regulation), and in the United States under Dodd-Frank.

4. Data Quality: The LEI system improves the quality of financial data, enabling more accurate and efficient reporting, monitoring, and analysis of market activities.

How Does the LEI Work?

The LEI is assigned to an entity after a registration process carried out by an authorised Local Operating Unit (LOU). This unique code is structured in a way that follows a globally recognised standard, ensuring it is distinct and traceable.

The LEI consists of 20 alphanumeric characters:

• The first four characters represent the entity's issuing LOU.

• The next 12 characters are the entity's unique identifier.

• The final four characters act as a checksum to ensure the identifier is valid.

This structure helps ensure the uniqueness and accuracy of each LEI, enabling easy verification and monitoring of entities in financial systems.

Issuance and Maintenance

LEIs are issued by accredited Local Operating Units (LOUs). The process involves:

1. Application: Entities apply to an LOU, providing accurate reference data.
2. Verification: The LOU verifies the data against reliable sources.
3. Issuance: Upon successful verification, an LEI is issued.
4. Annual Renewal: LEIs must be renewed annually to ensure ongoing data accuracy.

Global LEI System

The Global LEI System (GLEIS) comprises:

• Global Legal Entity Identifier Foundation (GLEIF): Oversees the LEI system, ensuring integrity and standardization.
• LOUs: Accredited by GLEIF to issue and manage LEIs.
• Regulatory Oversight Committee (ROC): Provides governance and oversight.

Benefits to Businesses

• Risk Management: Enhances risk assessment and management capabilities.
• Simplified Reporting: Streamlines regulatory reporting requirements.
• Improved Counterparty Identification: Facilitates accurate identification of counterparties, reducing fraud and operational risk.

Use Cases

• Financial Transactions: Identifying parties in transactions, ensuring compliance with regulations like EMIR, MiFID II, and Dodd-Frank.
• Supply Chain Management: Tracking and verifying entities in global supply chains.
• Regulatory Reporting: Streamlining and improving the accuracy of regulatory reports.

How to Get an LEI?

Obtaining an LEI involves the following steps:

1. Choose a Local Operating Unit (LOU): The first step is to select an LOU authorized to issue LEIs. These units are typically organizations like trade associations or regulatory bodies.

2. Provide Required Information: The entity applying for an LEI will need to provide various business details, such as the name, registration number, legal status, and address.

3. Pay Fees: There is typically a fee associated with obtaining and renewing an LEI. The fees may vary depending on the LOU.

4. Receive the LEI: Once the application is processed, the LOU will issue the LEI, and it will be included in the global LEI database, making it publicly accessible.

Conclusion

The LEI system is a cornerstone of financial transparency and risk management in the global marketplace. By providing a unique identifier for legal entities, it enhances trust, simplifies regulatory compliance, and supports efficient financial operations.

Frequently Asked Questions(FAQ):

Q1: What does LEI stand for?

A1: LEI stands for Legal Entity Identifier. It is a globally unique 20-character alphanumeric code used to identify legal entities engaged in financial transactions.

Q2: Why was the LEI system introduced? 

A2: The LEI system is intended to increase transparency in global financial markets, enabling regulators, financial firms and other interested parties to easily identify who is who (“who is who”) and who owns whom, which the 2008/09 crisis revealed had been an important unmet need in being able to identify exposure and risk across entities.

Q3: Is an LEI mandatory?

A3: Whether an LEI is required will vary according to regulatory requirements and the type of transaction, entity or counterparty in your jurisdiction. Most countries/regulators mandate LEIs for derivative deals, large cross-border transactions, regulatory reporting, etc.

Q4: Is LEI data public?

A4: Yes. As such, the information related to LEIs is stored in a global public database operated by GLEIF. LEI reference data is free to access and anyone can search for LEI based reference data.