Legal Entity Identifier (LEI) Number: What It Is and Why It Matters

Are you familiar with Legal Entity Identifier (LEI) numbers? If you’re involved in the financial industry, you’ve likely heard of them. But for those unfamiliar, the LEI number is a unique identification code assigned to legal entities engaged in financial transactions. Think of them as social security numbers for businesses. In recent years, the importance of these numbers has grown as they provide transparency and accountability in financial transactions, reducing the risk of errors and fraud in financial reporting. Read this post to know more!

What Is an LEI Number?

They have a unique identifier code assigned to legal entities involved in financial transactions. The LEI system was developed in response to the need for a standardised identification system for legal entities, which would help to improve transparency and accountability in financial transactions. The system is governed by the Global Legal Entity Identifier Foundation (GLEIF), a non-profit organisation that oversees the issuance and maintenance of numbers.

Why Do They Matter?

They matter because it provides transparency and accountability in financial transactions. Using a standardised identification system like LEIs helps reduce the risk of errors and fraud in financial reporting, making it easier for regulators to track and monitor financial activities. This, in turn, helps to promote financial stability and reduce systemic risk in the global financial system.

LEIs are also important because they help to streamline regulatory reporting requirements. Many regulatory bodies now require financial institutions to report their transactions using these identifiers, which has helped to standardise the reporting process and reduce the burden on financial institutions.

How are they Used?

LEIs are used in a variety of ways in the global financial industry. One of the primary uses is in regulatory reporting. Many regulatory bodies now require financial institutions to report their transactions using LEIs, which helps to systematise the reporting process and ensure that the data is accurate and transparent.

They are also used for counterparty identification in financial transactions. By using a regularised identification system like LEIs, financial institutions can more easily identify and track the parties involved in financial transactions, reducing the risk of errors and fraud.

In addition, they are used for risk management and compliance purposes. Financial institutions can use LEIs to track and monitor their exposure to counterparties and assess the risks associated with financial transactions.

How to Obtain Them?

Obtaining an LEI number involves a straightforward process that can be completed through a registered LEI issuer. The process involves collecting accurate and complete information about the legal entity or structure and verifying its accuracy. Once an LEI has been assigned, it is important to maintain the accuracy of the associated data. This means keeping the information up-to-date and ensuring that changes to the legal entity or structure are reflected in the LEI database.

To sum up, Legal Entity Identifier (LEI) numbers are used in a variety of ways in the global financial industry, including regulatory reporting, counterparty identification, and risk management. By using a standardised identification system like LEIs, financial institutions can improve the accuracy and transparency of financial transactions, reducing the risk of errors and fraud and promoting financial stability in the global financial system.