What is LEI

WHAT IS LEI

What is LEI (Legal Entity Identifier)?

Legal Entity Identifier or LEI is a unique global identifier to find any company worldwide taking part in financial transactions.

LEI is a 20-digit, alphanumeric code that is associated to key reference information enabling exclusive identification of companies participating in global commercial markets.

Its role is to help find legal entities in a global database. Legal entities are organisations such as companies or government institutions that take part in financial activities.

The code is linked to a set of key reference information referring to the legal entity. Once a legal entity receives an LEI code, the code is attached to that legal entity for its entire life.

Does my company need an LEI?

From 3 January 2018, MiFID II, requires that companies that make transactions in financial instruments traded, or which underlying assets are traded, on a trading venue must have an LEI. Full list of countries and regulations can be found here.

Many regulations dependent on jurisdictions require companies to obtain an LEI. Some jurisdictions require legal entities to get an LEI to make them quickly identifiable. There are a number of industries that are required to apply for an LEI.

The usage of an LEI is required under numerous EU and UK regulations:

Markets in Financial Instruments Regulation (MiFIR)/Markets in Financial Instruments Directive II (MiFID II)
Securities Financing Transactions Regulation (SFTR) – associations participated in securities financing activities and the recipients of the obligations deriving from these
European Markets Infrastructure Regulation (EMIR) – counter-parties to descendants agreement as well as merchants, recipients, CCPs and clearing members
Central Securities Depositories Regulation (CSDR) – CSDs, CSDs’ members
Prospectus Regulation – issuers of securities provided to the audience or granted to trade on a regulated market established or working within an EU member state
Alternative Investment Funds Directive (AIFMD) – finance managers and funds
Credit Rating Agencies Regulation (CRAR) – credit assessment offices and rated entities
Transparency Directive – issuers of commercial instruments catalogued on Regulated Markets
Market Abuse Regulation (MAR) – issuers of commercial instruments, organisms associated or listing in suspicious transactions
Capital Requirements Regulation (CRR) – commercial and credit institutions
Solvency II – insurance corporations and pension funds

The use of the LEI is requested or is in the process of being developed by diverse regulators, including those in the Canada, US and Asia-Pacific.

No LEI, no trade.

LEI and BREXIT

Having an LEI is strongly recommended, specially in the UK due to the ongoing BREXIT.

BREXIT affects companies trading internationally, meaning entities that do not have an LEI may be required to get one after the current global negotiations.

On MiFID transaction reporting, business archives registered with the FCA should be ready to accept and share reports with the UK governments.

Further information:

About BREXIT: https://www.gov.uk/transition
FCA sets out the latest expectations for firms on Brexit: https://www.fca.org.uk/news/press-releases/fca-sets-out-latest-expectations-firms-brexit
UK MiFIR – Legal Entity Identifiers: https://www.fca.org.uk/markets/mifid-ii/legal-entity-identifier-lei-update
MiFID reporting after the Brexit transition period: https://www.fca.org.uk/markets/mifid-ii/mifid-reporting-after-brexit-transition-period

Who can apply for an LEI?

Any legal entity can apply for an LEI.

The term legal entity includes particular members that are legitimately or commercially responsible for the performance of commercial transactions, or have the legal right to enter individually into legal contracts in their jurisdiction, regardless of whether they are integrated or established in some other way e.g. contractual, trust, cooperation. It excludes natural persons. It includes individuals acting in a business capacity, supranationals and governmental organisations.

Why is an LEI important?

The LEI presents a unique identifier for entities taking part in commercial activities that can be used on a cross border basis, through an open database updated daily. This universal scheme is essential to identifying each exposure for risk supervision of financial transactions, to conducting market surveillance and to creating transparency.

Using the LEI generates benefits for organisations including simplified regulatory reporting, cost-free database administration, enhanced risk control, more exact computation of counterpart exposures and advanced practical performances.

The LEI will present benefits in terms of new business events and costs, as a solid, clear and high quality legal entity reference data distributed across the marketplace.

Why was LEI needed?

Organisations working in international markets have long faced the problem of proper counterparts identification. With every country having its private company ID structure, time and resources were wasted in the verification and reconciliation of many company IDs. This issue came to light after the financial crisis of 2008, when important institutions and their subsidiaries could not be identified in global markets.

In the crisis aftermath, the G20 created and approved a global legal entities identification system. It should not only show members in financial transactions but checks the transactions financial risks using company’s information stored in the global GLEIS system. The G20 instructed the Financial Stability Board to set up a universal infrastructure that, under the control of the ROC, provided a solution to these issues.

Global Operating System

G-20 (website)

An international organisation of twenty countries comprising seven developed nations (G7), the main countries of the European Union, and twelve growing nations.

Financial Stability Board (website)

An institution created to enhance the stability of the global commercial system and to inspect international finance.

LEI Regulatory Oversight Committee (website)

The agreement-making institution for LEI Systems under FSB. The participating countries commercial jurisdictions, the central bank, and the IMF are defined as affiliates by international organisations.

GLEIF Board of Directors (website)

Global LEI Foundation. Responsible for regulating the LOUs in each country as a functional operating institution within the LEI structure.

LOUs (website)

Local Operating Units. The functional operating institution for issuing and managing the LEI code in each region. Here you can find active LOUs worldwide.

Obtaining a Legal Entity Identifier

The Global Legal Entity Identifier Foundation (GLEIF) is not issuing Legal Entity Identifiers, although delegates this capacity to local operating units (LOUs).

These LEI issuers deliver different services. Local operating units can offer different prices and LEI issuing speed for the registration services they provide. The LEI can be obtained in a couple of hours, days, or even weeks, depending on the service provider.

GLEIF is responsible for auditing LEI data quality and LEI system stability.

It is desirable to register an LEI through LEI registration agents. LEI registration agents work with LOUs to ease the LEI registration process and offer faster LEI registration service than LOUs.

It should be noted that a legal entity is not obliged to accept an LEI issuer from its own country. Legal entities are free to select their preferred LEI issuer based on their own cost considerations and individual needs.

LEI Regulator is a registration agent’s partner authorised to process LEI numbers. LEI Regulator is the fastest worldwide registration service that provides you with a legal entity identifier (LEI) in hours instead of days.

Click here to get your LEI.

How do I know my LEI code is issued?

This information is publicly accessible; you can run the GLEIF's search/lookup tool to find issued codes and entities. It takes about 5 minutes to locate your code in the database. The LEI data presents basic information about the legal entity established by the ISO 17442 standard, including official name, registration address and other information.

Level 2 information is published on the parent corporations of code owners and their relations with subsidiaries through their codes.

LEI code structure

The identifier is formed as a 20-digit, alpha-numeric code based on the ISO 17442 standard implemented by the International Organisation for Standardisation (ISO).

The first 4 characters determine the local operating unit (LOU) that issued the LEI. Characters 5-18 are the exclusive alphanumeric sequence granted to the organisation by the LOU. The final 2 characters are checksum digits.

Validity of LEI

LEIs are valid for one year from the date the Legal Entity Identifier is registered.
Annual renewal of an LEI is a prerequisite for a company that wants to continue taking part in regulated financial transactions.
Renewal can be carried out using an accredited registration agent and the code continues unchanged even when transferring between different LOUs (local operating units).

Information enclosed in LEI reference data (Level 1 and Level 2 data)

LEI data has basic ‘business card’ information, referred to ‘Level 1’ data. It solves the question ‘who is who?’.

The alternative part of the data, ‘Level 2’ information solves the question ‘who owns whom?’. When applicable, it allows identification of direct parents of any legal entity.

What is MiFID II

MiFID is EU, UK regulation that brings legislation governing legal systems who give commercial services, in specific those who work within the boundaries of economic instruments. MiFID came into effect in 2007.

Conforming to the Financial Conduct Authority (FCA), MiFID is the structure of European legislation for:

investment brokers that offer services to clients around shares, bonds, units in corporate finance systems and derivatives (known as ‘financial instruments’) and
the organised trading of economic instruments

New reforms have been developed, and will become connected to the affected entities from January 3rd 2018. This modified version of MiFID is accepted as MiFID 2 and is accompanied by the new MiFIR (Markets In Financial Instruments Regulation).

What is MiFIR

Where MiFID serves as more of a rule with differentiation’s established on jurisdiction etc, MIFIR is a a precise regulation and will need to be developed as written.

For example, reports/application waivers will need to be congruent and formed properly. This increases stability on an a global scale and helps level the playing field.

The MiFIR presents requirements for a number of entities to be classified through the LEI:

The issuer of any commercial instrument traded and/or detailed on a trading venue
The client of the company on whose behalf the trading venue is reporting under MIFIR Article 26.5, when the client is a legal entity
The individual who gains the commercial instrument, when this individual is a legal entity e.g. this includes investment administrators acting under an unrestricted instruction on behalf of its underlying clients
The clients (vendor, consumer) on whose behalf the investment company executes transactions, when the client is a legal entity
The entity submitting a transaction document
The association transferring the order
Finance companies that deal with transactions in commercial instruments

The above entities will need to be identified with an LEI even if they had no preceding legal requirement to get one and nevertheless of where they are legally based or acting.

What is CSDR

The Central Securities Depositories Regulation (CSDR) was established in September 2014. CSDR includes alternative methods for the supervision and authorisation of EU Central Security Depositories (CSDs) and sets out to create a common set of efficient, organisational, and control of business standards at a European level.

CSDR is created to support the achievement of the purposes of Target2Securities (T2S) system by the presentation of a securities settlement regulation regime. This operational aspects of securities agreement, including the provision of shorter contract periods, mandatory buy-ins, and cash penalties, to prevent and address settlement fails.

The EU Commission established that financial actors in capital markets should be regulated more consistently. From the 2nd April 2018, CSDR requires both counter-parties to transactions to be identified with a Legal Entity Identifier (LEI).

From February 2021, CSDR will impose cash penalties for settlement fails, and will affect financial intermediaries trading within the EU and UK.

What is SFTR

Securities Financing Transactions Regulation (SFTR) is a regulation that was presented in 2016 to improve the standardised and transparency processes for consumers and issuers in the securities markets in EU and UK. It is a stepped approach and is regularly renewed.

The goal of the legislation is to reduce fundamental risk in securities lending and make more visibility over collateral re-use. The SFTR involves both participants in any transaction to report transaction details. These reports are delivered to a central database or trade repository.

The Regulation requests to enhance the transparency of the reuse of commercial instruments by setting minimum conditions to be satisfied by the parties involved, including prior consent and produced agreement.

The GLEIF (Global Legal Entity Identifier) system is openly available, universal database presenting details of legal entities globally. Market member falling under SFTR is required to enrol to the LEI database so that they are detectable and verifiable.