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A Better Understanding Of What A Legal Entity Identifier Is And How It Works

The LEI (‘Legal Entity Identifier’) is a 20-digit code that is used to identify legal entities involved in financial transactions. LEIs are mandatory for banks, investment companies, brokerages, trading companies, credit unions, insurance firms, and other businesses specialising in financial services.

Each LEI is completely unique, which makes identifying entities much easier. This is especially true considering the fact that LEIs are international numbers, so with one’s LEI, it is possible to track down one’s company even if it is registered in another country.

This article will further explore LEIs, explaining what they are in greater detail, and how they work:

2007-2008 Financial Crisis

LEIs were first introduced in the wake of the 2007-2008 financial crisis after regulators realized identification codes unique to international financial institutions were not a thing. This made it impossible to identify individual corporations’ transaction details. In turn, making it extremely difficult to estimate a corporation’s risk exposure.

In 2011, the LEI system was developed. Its development and subsequent introduction allowed regulators to identify domestic and international entities more simply. Since 2018, LEIs have been mandatory for all entities that wish to participate in the trading of securities.

It is important to make clear that any legal entity can register an LEI. They are not exclusive to financial institutions, though as already mentioned, they are mandatory for them.

Registering LEIs

If your company needs an LEI, then you need to register for one. The registration process is very straightforward. After you have provided the relevant information and your application has been sent off, you will receive your LEI code by mail. The organisation that you register with will thoroughly check you out, in order to verify that you are who you say you are. This is to prevent fraud. Some of the information that you will be asked for includes:

  • The name of the legal entity as it is recorded in your country’s business register.
  • The address of the legal entity.
  • The country that the entity was registered in.
  • The date that your business was registered.

The LEI number is 20-characters but is divided into three parts. 1-4 identify the issuing organisation, 5-18 identify your company, and the last two characters are check digits.

Advantages of LEI Numbers

  • LEI numbers make it easier for other international businesses to trust that you are who you say you are. Overseas customers will not want to do business with you if you do not verify your identity.
  • LEI numbers also make it much more simple for overseas customers and partners to validate your identity. Companies can check the LEI register and find your business immediately.
  • LEI numbers give your business legitimacy, which is important in today’s business world, which is unfortunately fraught with fraud and theft. A business that has an LEI number can be trusted because they clearly have nothing to hide.
  • LEI numbers are mandatory for financial institutions. If you do not have one, then you will be unable to run a financial business or trade securities.

LEI numbers are a must-have for financial businesses. They make identification and verification much easier and give your business a lot of legitimacy. Anybody can register for one, although some businesses need one more than others do.