A LEI code (Legal Entity Identifier) is a unique
identification code assigned to legal entities (such as corporations, financial
institutions, or other organizations) involved in financial transactions. The
LEI is a 20-character alphanumeric code used to identify entities participating
in global financial markets.
Key Points:
- Purpose:
The LEI is used to enhance transparency in financial markets by providing
a unique, standardized way of identifying entities across borders. It
helps regulators, financial institutions, and others track transactions
more effectively and reduces the risks associated with financial
activities.
- Structure:
The LEI is 20 characters long and follows the ISO 17442 standard. It is
made up of:
- A
prefix assigned by the Global Legal Entity Identifier Foundation (GLEIF).
- A
unique identifier for the entity, which is based on data provided by the
organization that issues the LEI (referred to as Local Operating Units or
LOUs).
- Regulatory
Requirements: Many countries, especially within the European Union and
the United States, have made the LEI mandatory for entities engaging in
certain types of financial transactions. For example, in the European
Union, financial institutions must have an LEI when reporting transactions
under regulations like EMIR (European Market Infrastructure Regulation) or
MiFID II.
- Where
to Get It: LEIs are issued by accredited Local Operating Units (LOUs),
which are authorized to register and maintain the codes. Organizations can
apply for an LEI directly from these LOUs.
Use Cases:
- Transaction
Reporting: Used in reporting financial transactions to regulators.
- Risk
Management: Helps banks and financial institutions track
counterparties in global markets.
- Compliance:
Assists in meeting regulatory reporting requirements.
In short, an LEI provides a standardized identifier that helps increase the clarity, transparency, and efficiency of the global financial system.
