The 2018 Annual Report by the Global Legal Entity Identifier Foundation gave us a review of the success that the GLEIF, FSB and LEI ROC have had in increasing the adoption of Legal Entity Identifiers or LEIs worldwide. If you don’t know what an LEI is yet, I wrote a complete guide to LEIs that you can find here.
The GLEIF 2018 Annual report spoke of LEI adoption increasing, more LEI issuers than ever before and initiatives that the GLEIF are setting out in order to continue this rapid adoption.
It offered a glimpse into the future of LEI adoption and what this 20-digit code could mean for the future of business transactions.
If you haven’t read the report, I have summarised some of the key thoughts and how they shape the future in this post.
You don’t have to look far to see how quickly LEIs are being adopted. At the time the GLEIF report was released, 1.3 million LEIs had been assigned to legal entities globally for regulatory reporting.
This showed a growth of 37% on previous years.
Other highlights included:
The report showed how these LEIs are distributed globally and we can see that while, Europe has led the way, America, Canada, India and Australia are quickly picking up pace and following suit. What’s driving such fast adoption? Well, GLEIF’s board of directors are made up of a diverse range of people spanning several countries. People who have worked with regulators to ensure that the financial transactions and reporting of the future are always linked to an LEI Code.
The good news is, Legal Entity Identifiers are being adopted worldwide and show no signs of slowing down. The GLEIF have also announced several new initiatives or services that will continue to make LEI adoption faster and more affordable.
This year marks the launch of the new free service by the GLEIF, the Certification Mapping Service which, as the chairman Gerard Hartsink puts it;
“enables the mapping of the LEI with other identification systems of businesses and objects.”
Some of the benefits of this service include:
The LEI Search tool 2.0 has made significant process on it’s predecessor. It makes it easier to take full advantage of the publicly available LEI data supporting more use cases and applications. This means that the open LEI database becomes easier and more efficient to use, with most of us being able to get more information on organisations in the data pool.
New features include:
For organisations wishing to allow third-party access to the global LEI data pool via their website or applications, the GLEIF have released an API.
The LEI lookup functionality supports a wide range of functionality.
Know Your Customer (KYC)
Financial institutions and other market participants can streamline workflows by validating applicant information using the LEI database.
Organisations can benefit from improved client onboarding when taking on new clients. We’ve already spoken about the use of LEI for onboarding in detail in this blog but the crux of it is, client onboarding with LEIs have the potential to reduce cost and time associated with onboarding.
Allowing public authorities to monitor compliance issues such as renewal using the global LEI data pool.
As said on the GLEIF website:
“The Golden Copy Files, published by the Global Legal Entity Identifier Foundation (GLEIF), provide information on Legal Entity Identifiers (LEIs) and related reference data in a ready-to-use format that ensures:
Three sets of Golden Copy Files are created with each LEI, each of which comes with 4 delta files.
As the CEO of the GLEIF Stephan Wolf puts it:
“The new Golden Copy Files, together with the delta files, also help LEI data users to get frequently updated information on LEIs and related reference data in an easy‑to‑use format.”
Nothing will do more for global adoption than interoperability. What does that mean? Making identifiers globally recognisable. Mapping data to a number of third-party systems and allowing LEIs to serve the greater community of organisation identity.
On the 4th April 2019, the Association of National Numbering Agencies (ANNA) launched a new initiative to link International Securities Identification Numbers (ISINs) and Legal Entity Identifiers (LEIs).
By linking the two ISO Standards, firms can aggregate the data to gain a clear view of entities and securities trading in the global data pool.
In February 2018, GLEIF and SWIFT introduced the first open source relationship matcher between a Business Identifier Code (BIC) and Legal Entity Identifier (LEI). Like ISIN-LEI mapping, BIC-LEI Mapping brings two ISO Standards.
As stated on the GLEIF website:
“Availability of the open source BIC-to-LEI relationship file will ease the process of gathering, aggregating and reconciling counterparty information based on interoperability across parallel ID platforms. This is particularly relevant to service providers active in the payments and over the counter (OTC) derivatives markets concerned with client relationship management, or due diligence relevant to know your customer (KYC) and know your supplier (KYS).”
The use of Legal Entity Identifiers in digital certificates has the potential to solve a lot of identity issues across the internet today. Up until now, digital certificates came in three forms, DV, OV and EV. OV and EV certificates validated more than just ownership of a domain, they validated the identity of the organisation applying for it. But there have been a lot of arguments that this just doesn’t work anymore. Just see what Troy Hunt said here or what Scott Helme said here.
Digital certificates encrypt almost all internet communication today, even being used in IoT technology. But if we could apply some of the value that LEIs have to digital certificates, we might feel a greater assurance that we are communicating with the right organisations.
One way that LEIs can be applied to digital certificates apart from HTTPS is digital certificates for signing. Imagine signing an invoice with a digital certificate that has your company identity firmly routed in an LEI code. This can solve some of the roadblocks to digital transformation that many organisations are dealing with today.
Up until today, every identity system has had different ways of using identifiers or identifying customers. Some use many different identifiers, while others use few. There is no consensus.
LEIs have the potential at first, to simplify and globalise a method of validating organisations and mapping identifiers. Tomorrow, this information can be used on a greater scale to understand organisation identity and hierarchy and potentially contribute to newer technological innovations like blockchain.
Banks are one example of companies who use different identifiers internally to identify the same customer. Vendors associated with the bank may also use different identifiers. LEI can consolidate some of these issues.
Let’s use the example of a bank client putting in an order to sell a bond or stock. The bank may struggle to locate the documents to them being tagged with an account number instead of a Legal Entity number and as such, they will block the account from trading.
The bank of the future will use LEIs and organisation identity to save time onboarding, make processes more efficient and have a greater understanding of the transactions they are being asked to make, thereby providing a better safety net for the bank and for the clients they work with.
Banks in trade financing could save up to US$ 500 million per annum overall by using the LEI in the issuance of letters of credit, they could also save many hours in onboarding time.
In addition, LEIs could help save money and time in the steps taken to complete a digitalised financial transaction. Just think of some examples of the steps involved.
The entire order to payment process can be made between organisations in a much more efficient way thanks to the work being done by the GLIEF and others.
Imagine the process of letters of credit. They are already particularly time-consuming and involve many steps. To mitigate risk and comply with anti-money laundering (AML) regulations, both the buyer’s bank and the seller’s bank must conduct several counterparty checks.
LEIs would enable the immediate, digitised identification of entities and would allow banks to dramatically curtail the time and resources spent on background checks and investigations. It would also reduce the instances of false reporting.
Everywhere you go, there is evidence that LEIs will have a huge impact in years to come and we hope that ManagedLEI and other LOUs will continue to work hard at spreading awareness and increasing adoption of LEIs.
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