February 1, 2020
LEI code as Legal Entity Identifier
The Legal Entity Identifier (LEI) is a unique global identifier of legal entities participating in financial transactions. These can be individuals, companies or government entities that participate in financial transactions. The identifier is used in reporting to financial regulators and all financial companies and funds are required to have an LEI.
LEI, or Legal Entity Identifier, is a unique identifier for persons that are legal entities or structures including companies, charities and trusts. The Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code, to uniquely identify legally distinct entities that engage in financial transactions.
If you are a corporate trader and your company is trading, let’s say, with an FCA or CySEC licensed broker and, you have to submit your LEI number in order to be properly identified in transaction reports submitted by the broker to their regulator.
At the time of the financial crisis of 2007–2008, regulators realised that a single identification code unique to each financial institution was not available worldwide. It means that each country had different code systems to recognize the counterpart corporation of financial transactions. Accordingly, it was impossible to identify the transaction details of individual corporations, identify the counterpart of financial transactions, and calculate the total risk amount. This resulted in difficulties in estimating individual corporation’s amount of risk exposure, analyzing risks across the market, and resolving the failing financial institutions. This is one of the factors that made it difficult for the early evolution of the financial crisis.
In response, the LEI system was developed by the 2011 G20 in response to this inability of financial institutions to identify organizations uniquely, so that their financial transactions in different national jurisdictions could be fully tracked. Currently, the Legal Entity Identifier Regulatory Oversight Committee (LEI ROC), a coalition of financial regulators and central banks across the globe, is encouraging the expansion of the LEI. In the first moment, the U.S. and European countries required corporations to use the legal entity identifier when reporting the details of transactions with over-the-counter derivatives to financial authorities. As today, authorities of 45 jurisdictions mandate the use of LEI code to identify legal entities involved in different financial transactions.
The first LEIs were issued in December 2012.
LEI code in Simple Terms
● LEI code – Legal entity identifier code.
● Unique identification code for entities which trade in financial markets (stocks, bonds, futures, forex, etc.)
● Every deal conducted in the markets will connect to the other counterpart with an LEI.
● Used for regulators to oversee financial markets.
● LEI connects financial markets, companies and regulators.
● The issuing of an LEI code is conducted under GLEIF-accredited LOUs.
● GLEIF – Global Legal Entity Identifier Foundation
● NO LEI, NO TRADE.
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