LEI, also known as Legal Entity Identifier, is a unique 20-character number or numeric code assigned to companies and corporations that engage in financial transactions both internationally and nationwide.
What is LEI?
The 20-digit number or code (known as the LEI number or LEI code) is unique because it is linked to various key information of that legal entity. Only legal entities can obtain an LEI. No individual person can obtain it. Legal entities are entities that operate legally. For example, companies that engage in financial transactions are considered legal entities. Similarly, organizations, institutions, corporations, funds, etc, are also categorized under legal entities. Hence, if these companies have to engage in financial transactions, they must apply for an LEI or be assigned an LEI.
History and benefits
LEI came into full force in 2012 but it was developed in 2011. The LEI system was brought into effect after the disastrous 2008-2009 Global Financial Crisis revealed the loopholes in the global financial system. The LEI system enables a unique identification of the parties (companies) involved in financial transactions. This identification reveals some key information related to the legal entity such as the ownership details of the company, other details include the name, contact number and email address of the Director, CEO, etc.
There are several benefits associated with adopting the LEI system. Some of the benefits are as follows:
- It makes identification of different legal entities engaging in financial transactions easier.
- It keeps the financial transactions occurring between different legal entities transparent.
- It helps manage risk. Financial transactions are easily exposed to risk. LEI helps minimize that risk.
- It helps in tracking the financial transactions made between different legal entities in case something goes wrong.
How to get LEI?
LEI can be obtained through Local Operating Units (LOUs). LOUs are primarily responsible for issuing LEIs to different companies who apply for it. LOUs are accredited by the Global Legal Entity Identifier Foundation (GLEIF) which is responsible for monitoring the operations of LOUs and making sure that the integrity of the LEI system is maintained. LOUs are present in each jurisdiction.
Is LEI mandatory?
LEI is mandatory for all the companies or corporations who want to engage in financial transactions. Countries like the United States and European countries have made LEI mandatory for all the companies that exist under that jurisdiction. In India, the Reserve Bank of India has also made it mandatory for all the companies operating within India to be issued or assigned an LEI. In short, LEI allows identification on a global scale. As a result, it has become mandatory for all legal entities all around the world to have an LEI.
LEI cost varies from jurisdiction to jurisdiction. The issuing speed of LEI also varies from jurisdiction to jurisdiction. It can be obtained within hours of application or it can even take days or weeks. The validity period of LEI is exactly one year. After 1 year, LEI has to be updated or renewed again. To obtain LEI, the company’s representative must complete the registration or application process.