The Importance of Legal Entity Identifiers (LEI)

Why do you need a Legal Entity Identifier(LEI)?

As of the 3rd of January 2018, LEI’s are mandatory for trading entities. The European Union (EU) revised Markets in Financial Instruments Directive (MiFID II) and accompanying regulation (MiFIR) came into effect on this date and affects trading venues, investment firms and their intermediaries.

With regard to transaction reporting under MiFIR, the European Securities and Markets agency have clarified that investment firms should obtain LEIs on behalf of their clients before providing services which would trigger reporting obligations for transactions made on behalf of a firm’s clients.

Please see our LEI Regulators page for more information on the bodies governing LEI.

What is an LEI?

A Legal Entity Identifier (LEI) is a 20-character identifier that represents a distinct legal entity engaged in financial transactions. Defined by the ISO 17442 standard, its purpose is to be “the one identity behind every business”.

The LEI is a global standard designed to identify legal entities involved in financial transactions and other valued transactions between corporations or legal entities.

The system has been designed in the spirit of public and private partnership to improve transparency in the marketplace for entities and regulators alike, and to collate financial transaction information in to a freely accessible global system.

LEI is intended and will continue to be a non-proprietary independently regulated system of transactional identification.

Who regulates the system?

LEI is regulated by the ROC through the GLEIF.

Please see our LEI Regulations page for more information.

Does the regulation affect my company?

The regulatory use of LEIs is managed by regional and jurisdictional authorities. To view a useful summary containing information on current legislation where LEIs are required (or proposed as a requirement) please click here.

Who supports this initiative?

Development of the Global LEI system has been through extensive public and private sector collaboration and will continue in this spirit. Back in 2011 the G20 leaders, at their November summit, supported the initial “creation of a global legal entity identifier (LEI) which uniquely identifies parties to financial transactions.

The G20 leaders engaged the Financial Stability Board (FSB) to take the lead on coordinating work with regulators in developing the governance framework for the LEI system, with significant support from the private sector in the technical solutions for implementing LEI.

The G20, with the support of the Regulatory Oversight Committee (ROC), created in 2013 to oversee the system ‘in the broad public interest’ took over responsibility for management and implementation of the Global LEI system from the FSB, who continue to provide support and guidance to the initiative.

Now more than 70 public authorities from more than 40 countries that assented to the ROC Charter have committed to support the introduction of the Global LEI system as a means of recording official or global transactions.

What next?

Your organisation may not legally require an LEI now if you aren’t a trading entity, but discussions are already being held by these governing bodies as to the potential uses of an LEI for other transactions companies make.

With online authentication being one of the most important aspects of digital transactions, and more than 70 authorities committed to the charter, companies in the future may need an LEI for other types of secure transactions or goods.