Legal Entity Identifier: Everything you should know

If you run a company that deals with financial trades, such as foreign exchange, bonds, and stocks, there is a good chance that you may have come across the term Legal Entity Identifier (LEI). The Legal Entity Identifier is simply a 20-digit unique identification code or character that is assigned to a company to provide transparency in financial transactions via connection to key information. You can use this number globally to help identify your transactions, regulatory reporting, and business purposes.  

The Global Legal Entity Identifier Foundation oversees the Legal Entity Identifier. Remember that this foundation manages the structure, activity, and policies of the system called the Global Legal Entity Identifier System. Besides, it also helps business owners worldwide to access the open database so that you can verify any Legal Entity Identifier. This article discusses the Legal Entity Identifier. 

Understanding the Legal Entity Identifier

As explained earlier, a Legal Entity Identifier is a code or number that works as an entity or international business registration number. Banks and businesses can use the Legal LEI to identify international businesses, such as organizations and companies that are doing financial transactions like trading stocks, foreign exchange, and bonds. If you want to identify any company, you can use LEI lookup.

A legal entity that is transacting or trading on the financial markets in several countries including the European Union and the United States must get an LEI number that has 20 characters.

An LEI number can be divided into three parts. There is the identification of the Local Operating Unit, which has characters between 1 and 4. There is also the identification of the legal entity that has characters between 5 and 18. Lastly, there is the legal entity’s verification of the identity that has characters from 19 to 20. 

It’s worth mentioning that the LEI number is simply an alpha-numeric code that is based on the ISO 17442 standard. The International Organization for Standardization developed this code. The 20-digit character can help you to identify legal entities internationally and you can confirm their identity. As a result, this gives transparency to the financial markets.

There are two levels of data that the LEI is made up of. There is level 1 data which includes information regarding the entity’s legal name, legal address, registration number, and many more. The level 2 data has the relevant information associated with the ownership and ownership structure of the entity.

You should note that the LEI system attracts a certain fee. You can be charged an annual fee if you want to register a new LEI number and renew the current LEI. The fee covers regulations, administration, and system maintenance.

Companies and organizations that need the LEI

No doubt, the LEI system can help your company, especially when it comes to the global tracing of financial transactions. It also allows you to easily identify legal entities and their owners. The system can do this by offering a standardized global reference system and information.

You should not that the LEI system was created in 2012 due to the global financial crisis that happened between 2007 and 2008. Its goal is to provide transparency in the transactions and financial systems to prevent financial fraud and money laundering. 

Another purpose of the LEI system is to regulate financial factors in jurisdictions that use the LEI system. The aim is for the worldwide system to be standardized, meaning that there should be a system that can be utilized across countries and markets. 

Three different authorities manage the LEI system to make sure that the system is transparent, credible, and reliable. One of these authorities is called the Regulatory Oversight Committee (ROC). This committee has supervisory authorities responsible for overseeing the governance principles of the global LEI system. 

Another authority is called the Global Legal Entity Identifier Foundation which is a not-for-profit organization responsible for coordinating and managing LEI numbers. Lastly, there is the Local Operating Unit which is an LEI-issuing organization responsible for issuing LEI codes to legal entities.  

Some countries operate under a wide range of regulations that require the LEI for transaction reporting. For example, in the United States, these regulations include the Commodity Exchange Act, the Dodd-Frank Act, and many more. As a result, almost 14 percent of the globe’s LEIs have been registered in the United States financial services economy. No wonder, the United States is considered to be the largest user of the LEI.

The main users of the LEI tend to be legal entities that operate in the financial services industry or are involved in financial transactions. Therefore, there is a good chance that you may need to get an LEI number, especially if your business is in the global financial system.  

Sole traders or LLCs are not legally required to get LEI. But there are many advantages related to having an LEI number. An LEI number can act as an identity card that is recognized globally and can enhance the credibility of your business. And, because the LEI is being adopted by many companies as a global standard, it makes sense to get one right away. 

Also read: How to Hire the Best Criminal Lawyer for Your Needs

When it comes to LEI prices, they vary depending on the type of services you want. Renewals of current LEIs and new LEI numbers are usually charged differently. You can find some LEI service providers that offer both registration of new LEI codes and renewals for the same price.  

You can renew your LEI number annually to make sure that the required information is up-to-date. But depending on the renewal plan you opt for, some LEI service providers can automatically renew it for you. They do this by updating the necessary information in case the local business register failed to update it. You can also submit to the LEI service provider information that needs to be updated if there are some changes to your legal entity. Therefore, you should always make sure that the information is regularly updated should there be any changes in your legal entity. This helps your business to look credible and transparent.