Legal Entity Identifier is an alphanumeric, 20-character code developed by the International Organization for Standardization. Abbreviated as LEI, this code contains information on the company’s ownership structure and provides answers of ‘who is who’ and ‘who owns what.’
It gives a unique identification of all legal entities (organization, company, firm, trust, fund, and government body) that are participating in any financial transactions.
The complete LEI system is operated and maintained by GLEIF (Global LEI foundation), and the right to issue LEIs is only given to the few organizations.
It All Started With Wrigley’s:
In 1974, when the grocery industries were pleading for the development of barcode, many companies proposed their proposals to bring them. Considering this, the UPC was introduced, which became the first code to be scanned on Wrigley’s Chewing gum.
Later, to end the one-dimensional (UPC) barcode, which only contains 20-alphanumeric codes, Denso Wave (a Toyota’s subsidiary) invented Quick Response (QR) codes. QR codes are a two-dimensional system that focuses on rapid scanning and is widely used by today’s marketers to streamline processes.
Legal Entity Identifier (LEI) Came In Existence – 2011
The LEI was developed by the G20 (an international organization with 20 major countries) in 2011 to track all financial transactions in national jurisdictions. The need for LEI came when regulators were suffering from financial crises, and there was no unanimous code to make successful financial transactions.
The difficulties in identifying transaction details and calculating the risk amount bring LEI into existence. The first (LEI) legal entity identifiers database was issued in December 2012.
Structure Of Code:
Technically, the Legal Entity Identifier is represented as ISO 17442. It contains 20-character alphanumeric numbers with the first four characters showing the LOU, Local Operating Unit. The other 5-18 characters are an alphanumeric string, which organizations assign. And, the last two characters are called checksum digits.
Process Of LEI:
The companies that need a Legal Entity Identifier should contact the respective organizations that provide LEIs. They then have to provide the necessary information and the fee. The issuing body will then provide LEI after cross-checking all details. Things like registration of the business, information about other connected companies, etc. are verified before giving LEI. Some other things, which the issuing body will assure, are:
- A country where the entity was formed
- The registered address of the legal entity
- Any legal or official name of the entity (if any) that is present in the records
- The Unique code of representing countries and their connected company’s
- Data of the first LEI assignment, date of the last information update and it’s an expiry date
Why LEI Is Important:
- LEIs reduce the risks associated with financial transactions. With them, you can easily measure the total risk involved in trading.
- It minimizes the overall cost of reporting tasks, cost of information gathering, and other administrative costs.
- LEI help in enhancing market transparency as with a unique code, it is easy to detect the frauds and other manipulations in the market.
Who Should Need LEI?
Organizations, corporations, and other entities that are involved in the financial transactions need LEI to recognize all entities and funds involved in the transactions. If you are any of the following, you can register for LEI:
- A non-profit organization
- Registered Company or Registered Subsidiary
- A business having a distinct identity
- A trust or Funds
LEI In Business And In Payment Systems:
To have clear business identification and to make transparent financial transactions, business needs a unique code called LEI. LEI also helps to minimize the cost and the speeding process of transactions, improve data sharing, and more. Furthermore, in trading (direct and indirect payments), LEI ensures that the correct information is used to transfer funds.
LEIs not only ensure transparency and safety in the global market, but also provide maximum compatibility and safe business.