Legal Entity Identifier (LEIs) Can Simplify KYC/KYB

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The financial crisis of 2007-08 brought home the realization that there is no easy way for regulators to validate the identity of parties involved in complicated financial transactions Thus the Legal Entity Identifier (LEI) system was born in 2011 with the blessing of the G20.

Legal Entity Identifier (LEIs) Can Simplify KYC/KYBThe introduction of LEIs changed the landscape of global financial transactions because it made it easier to identify the transacting parties. It also made it easy for organizations that had the LEI to take their business to the global stage. The transparency around ‘who is who’ and ‘who owns whom’ aided regulators in the accurate identification of market participants and their counterparties anywhere in the world. With one common identifier for entities of all forms, types, sizes and jurisdictions, the confusion around verifying their identities was considerably reduced.

What is a Legal Entity Identifier?

  • The Legal Entity Identifier (LEI) is a global reference code that uniquely identifies every legal entity or structure that is a party to a financial transaction, in any jurisdiction.
  • The LEI is a 20-character, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO).
  • 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 answers the questions of ‘who is who’ and ‘who owns whom’.
  • The LEI data pool can be regarded as a global directory that greatly enhances transparency in the global marketplace.

The LEI is a standardised global identifier in the Global LEI System, an open database of organisational identities maintained by the Global Legal Entity Identifier Foundation (GLEIF) Established by the Financial Stability Board in June 2014, the Global Legal Entity Identifier Foundation (GLEIF) is a not-for-profit organization created to support the implementation and use of the Legal Entity Identifier (LEI). GLEIF is headquartered in Basel, Switzerland.
GLEIF ensures the operational integrity of the Global LEI System and is overseen by the Regulatory Oversight Committee, which is made up of representatives of public authorities from across the globe.

Within the database, GLEIF also maintains verified information on the parent and child structure of organisations and company officers, along with historical changes in the organisation’s data and attributes. This makes the Global LEI System a live record of millions of legal entities worldwide.

LEIs and KYC/KYB
Know Your Customer (KYC) is the process of validating the identity of a customer (or client) and is usually undertaken by businesses that require a high level of trust about the counterparties with whom they are doing business (e.g., banks and financial institutions). KYC covers individuals as well as businesses, also known as Know Your Business (KYB). KYC is a mandatory exercise for financial institutions the world over to comply with Anti-money Laundering (AML) regulations.

The LEI simplifies the KYC/ KYB process, because the identity of an entity with an active LEI has already been validated and verified against statutory identity documents, such as a tax identity numbers, incorporation certificates, etc., by the Local Operating Unit (LOU) in a jurisdiction, before issuing the LEI.

Currently, banks globally may use many different identifiers while onboarding new clients; this KYC process can take a couple of days. It can sometimes lead to inconsistencies that need to be resolved resulting in considerable cost overhead and an adverse impact on customer service. However, all that time, money, effort, and goodwill can be saved by using the LEI as the identifier in the KYC process.

LEIs in India
The combined impact of LEI mandates issued by various regulatory bodies such as RBI, SEBI, and IRDAI has increased the demand for LEIs across India in recent years. New LEI issuance in 2020 and 2021 grew by 45.6% and 62.4%, respectively. By the end of 2021, a total of 76,432 LEIs had been issued in India.

The process of obtaining LEI in India is now easier than ever before.

Rubix Data Sciences (Rubix) has recently been appointed as India’s first Validation Agent for the LEI by GLEIF and the Legal Entity Identifier India Ltd (LEIL), a wholly owned subsidiary of The Clearing Corporation of India Ltd, which is the Local Operating Unit of GLEIF. LEIL is recognised as an issuer of LEIs in India by the Reserve Bank of India (RBI), under the Payment and Settlement Systems Act, 2007.

The RBI has issued various circulars from time to time in connection with the LEI:

In its recent circular issued on April 21, 2022, RBI has stated that non-individual borrowers enjoying aggregate exposure of ₹5 crore and above from banks and financial institutions shall be required to obtain the LEI in a time bound manner.

As a Validation Agent, Rubix will handhold entities during their LEI application process and validate the information provided by them, enabling them to obtain the LEI quickly and cost-effectively. This in turn helps banks and financial institutions comply with the RBI notifications mentioned above.

Rubix has signed MOUs with various banks offering the LEI to their customers at special rates with quick turnaround times. This helps banks in speeding up their clients’ KYC process and reduces the risk of regulatory non-compliance.

APPLY FOR LEI

To learn more about the LEI and how to obtain it for your organisation or your customers, please reach out to us at:
Email: lei@rubixds.com
Toll Free Number: 1-800-258 4421
WhatsApp: +919152009200

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