Several national, regional, and other identifiers are being used to cover specific needs in business, but the Legal Entity Identifier stands out compared to them because it is truly global and has already been adopted by many regulatory authorities across the world.
The Legal Entity Identifier (LEI) is a 20-character, alphanumeric code that uniquely identifies a legal entity or structure that is a party to a financial transaction in any jurisdiction. The LEI connects to key reference information that enables a clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’.
Why is the LEI the gold standard in verifying business identity globally:
- The LEI format is standardized around the world
- LEI was developed as a collaborative effort by regulators across the world to push transparency in transactions across markets, products, and regions. More than 100 regulations by governments all over the world already mandate the use of LEI for certain types of transactions, and governments and international regulators have been able to reach a broad consensus over its development and use.
- The Global LEI system is universal with a wide scope for application. This is crucial to cater to the cross-border needs of present-day globalised trade. Validation of identity in such a complex environment is critical for ensuring financial stability, and that is feasible only with a global identifier such as the LEI.
For example, banks simply need to check GLEIF’s open LEI database to monitor group exposures when providing credit to any business, as it helps fully understand who the real recipient of the liquidity is. While conducting tender processes for sensitive sectors like defence, government departments can run a check to exclude companies that may have foreign links. Perhaps, the greatest advantage of LEI would be its role in cross-border fraud prevention.
- The LEI confers global credibility on businesses, financial institutions, and organisations. MSMEs that obtain LEIs can stand out amongst their peers in the domestic and global marketplace.
- With the expansion of B2B e-commerce, LEI is being increasingly used for better identification of buyers and sellers on online marketplaces. It drastically cuts time in KYC and onboarding, helps comply with Anti Money Laundering activities (AML) and Know Your Customer (KYC) regulations, and filters out fake entities.
- Issued LEIs can be easily searched on the GLEIF database, either on its web interface or via API.
- LEI searches always provide updated results, as the LEI has to be renewed annually. LEI renewal requires validation of the latest corporate details of the legal entity.
All these factors give the LEI an edge over other identifiers, making it the gold standard for identity validation at present.
Have you got your LEI? Are your counterparties required to furnish LEI? You can reach out to Rubix for all your LEI-related needs at firstname.lastname@example.org, call us on our LEI Toll-free number: 18002584421, or WhatsApp us at +91 91520 09200