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The Legal Entity Identifier (LEI) is unique global identifier of legal entities participating in financial transactions. These can be individuals, companies or government entities that participate in financial transaction. The identifier is used in reporting to financial regulators and all financial companies and funds are required to have an LEI.
The identifier is formatted as a 20-character, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). It connects to key reference information that enables 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’. Simply put, the publicly available LEI data pool can be regarded as a global directory of participants in the financial market.
There are a number of LEI issuers around the world that issue and maintain the identifiers and act as primary interfaces to the global directory, these are typically financial exchanges or financial data vendors. These are accredited by the Global Legal Entity Identifier Foundation (GLEIF) to issue LEIs.
At the time of the financial crisis of 2007–2008, regulators realised that a single identification code unique to each financial institution was not available worldwide. It means that each country had different code systems to recognize the counterpart corporation of financial transactions. Accordingly, it was impossible to identify the transaction details of individual corporations, identify the counterpart of financial transactions, and calculate the total risk amount. This resulted in difficulties in estimating individual corporation's amount of risk exposure, analyzing risks across the market, and resolving the failing financial institutions. This is one of the factors that made it difficult for the early evolution of the financial crisis.
In response, the LEI system was developed by the 2011 G20 in response to this inability of financial institutions to identify organisations uniquely, so that their financial transactions in different national jurisdictions could be fully tracked. Currently, the ROC (Regulatory Oversight Committee), a coalition of financial regulators and central banks across the country, is encouraging the expansion of the LEI. Currently, the U.S. and European countries require corporations to use the legal entity identifier when reporting the details of transactions with over-the-counter derivatives to financial authorities.
The first LEIs were issued in December 2012.
The technical specification for LEI is ISO 17442. An LEI consists of a 20-character alphanumeric string, with the first four characters identifying the local operating unit (LOU) that issued the LEI. Characters 5-18 are the unique alphanumeric string assigned to the organisation by the LOU. The final two characters are checksum digits.
|FSB (Financial Stability Board)|
- Board of Directors
|LOU 1, LOU 2, LOU 3 ...|
Both corporations and funds involved in financial transactions need the LEI. LEI is an identification code designed to recognize all of the entities and funds involved in financial transactions worldwide. Therefore, all corporations and funds that participate in financial transactions should be issued LEI.
In the United States and Europe, the parties to the transactions must use the LEI to report to the supervisory authorities any out-of-books derivatives transactions. Recently, it has expanded their coverage such as alternative investments, fund investments, insurance, spot markets, pensions, logistics and bids.
The Global Legal Entity Identifier Foundation (GLEIF) is not directly issuing Legal Entity Identifiers, but instead delegates this responsibility to local operating units (LOUs). These LEI issuers supply different services. Local operating units can have different prices and LEI issuing speed for the registration services they offer. The LEI can be obtained from couple of hours to days or weeks, depending of the service provider. LOUs can also work together with official Registration Agents who offer LEI registration services and ease the process of obtaining an LEI for the legal entity. GLEIF is responsible for monitoring LEI data quality and integrity of the LEI system.
Other formal authority UID in legal context: