The LEI is a globally-recognised code for legal entities participating in financial transactions. It connects to key reference data on a public database that allows easy identification of the entity.
The global LEI system offers transparency to businesses, governments and their customers. It speeds up onboarding processes, reduces errors and costs, and boosts trust in the marketplace.
1. Increased Transparency
LEIs are a global standard for identifying legal entities and are used to bring clarity to the financial market. They help to reduce costs, enhance transparency and promote a level playing field for smaller or non-domestic companies. Many governmental bodies including the SEC, Federal Reserve and OFR mandate LEIs for reporting purposes.
Previously, identification processes were manual, time-consuming and prone to errors. LEIs promote standardisation and follow a globally implemented data structure, which makes them more effective.
The publicly available LEI data includes information such as the entity’s legal name, registry where it is registered, registration number, legal jurisdiction, status and the managing LOU. This is classified as Level 1 data. In addition to this, LEI codes contain Level 2 data which identifies the ownership structure of the entity. Hence, it is easier for businesses to onboard a clean clientele.
2. Enhanced Compliance
Having an LEI code makes it easier to comply with regulations and streamline financial transactions. It also helps to build trust with customers and partners.
The LEI is a unique 20-character alphanumeric code that can be used to identify all types of legal entities including companies, funds, trusts, and banks. It is based on a standard that is globally implemented and publicly accessible.
It can be challenging to keep up with complex global regulations, especially for small businesses without dedicated resources. LEIs can help to make compliance simpler by providing a consistent, clear and easy-to-use identifier for all types of legal entities. They can also help to speed up the KYC process, reducing costs and time.
3. Reduced Risk
Having an LEI code provides businesses with more visibility into global markets by linking financial data to legal entities which you can find on the LEI code homepage. This enables greater operational efficiency, more accurate calculation of exposures and better risk management.
The 2008 global financial crisis brought to light the need for a common system that helps identify and link business information on a global scale. Previously, each country used their own system to recognise counter-party corporations during transactions, creating significant problems for regulators, banks and credit providers.
Now, regulatory bodies around the world, including the US Department of Treasury, the Office of the Comptroller of the Currency, the Consumer Finance Protection Bureau and the Securities and Exchange Commission are adopting rules that require businesses to report their LEI codes in their filings or reports. This makes the global LEI a “linchpin” of financial data.
4. Increased Reputation
For any company to succeed in the global marketplace, it must be trusted by its trading partners. However, the complexity of the corporate structure makes it difficult to determine a counterparty’s true legal identity. This is especially challenging when transactions take place across borders.
National and local identifiers like the LEI can solve this issue by providing a unique identifier that connects a wider range of data sources. This helps streamline regulatory reporting, enhance risk management and support KYC/KYS compliance.
The resulting benefit is improved reputation, both locally and globally. With the ability to easily locate LEI reference data in a public database, trading partners can better identify and trust their counterparties. This also improves efficiency by eliminating the need for multiple identifiers. It is the only identifier that answers the two most important questions: “who is who?” and “who owns whom?”.
5. Enhanced Security
When you have an LEI code, the validity of your company’s identity is confirmed. This makes it easier for businesses to perform checks such as a KYC, due diligence, and SSL validation.
In addition to a unique identifier, the LEI provides reference data including basic ‘business card’ information and a global directory of all registered entities. This information is also used to help identify potential fraud and meet regulatory requirements for Know Your Customer (KYC) processes.
Regulated financial institutions and many other regulated industries are required to have an LEI in order to participate in certain transactions. Having an LEI can reduce the burden of complying with numerous regulations globally and locally. By providing reliable and accurate data, an LEI code can also help reduce operational costs and risk of error. In turn, this helps improve business efficiency and profitability.
6. Streamlined Onboarding
A streamlined onboarding process is one of the most important things you can do to ensure your new hires succeed in their role. Studies show that structured onboarding increases employee retention and productivity.
Having an LEI can help you streamline onboarding by providing a unique, global identifier that links data sets. This helps to improve analysis and enables organisations to have confidence in the data they are using.
The LEI can also help save money on KYC processes and onboarding costs. Several regulators around the world have rules that mandate LEI for certain types of reporting and/or onboarding (see GLEIF vendor stakeholder network). Additionally, an LEI can be used to support localised reference data for identity assertions, improving accuracy. This is especially helpful when trying to identify a corporate borrower across multiple jurisdictions. This makes it easier to monitor their exposure and mitigate risks.
7. Enhanced Customer Service
Many financial regulations require that a business obtain and use an LEI code. This is because the LEI code provides a global, standardised way of identifying and verifying legal entities. This reduces the burden of compliance with KYC and AML regulations.
Additionally, it makes it easier to onboard new customers by providing a reliable, consistent and unique identifier for businesses. This helps to build trust and improve customer service.
When selecting an LEI provider, it is important to choose one that offers excellent service. This includes a fast turnaround time and a convenient online dashboard. You should also consider whether the provider charges a premium price for LEI transfers and renewals.
8. Increased Efficiency
The global business infrastructure is becoming increasingly complex, and with more regulations mandating LEIs and requiring them to be renewed annually, it is essential that you have the right systems in place. With a single LEI Management system, you can simplify your onboarding, transaction, compliance reporting and risk monitoring processes.
LEIs offer a standardised, globally implemented way to identify legal entities, helping to improve efficiency in the use of data by reducing the errors caused by inconsistent data entry. They also support sustainability initiatives by allowing organisations to track their supply chains.
LEIs are a necessity for all businesses that engage in financial transactions or operate within today’s global business systems. To maximise operational efficiency, ensure you have a trusted LEI provider and purchase a multi-year code that can be easily renewed. Then, you can be on your way to the ‘LEI Happy Path’.
9. Reduced Costs
Many trading, compliance and reporting processes in the financial industry require a complete and accurate picture of a company’s corporate structure and hierarchy. This can be difficult and time-consuming to accomplish without a consistent global system for identifying legal entities.
The LEI provides this consistency, shortening the process of searching for a business by name and reducing the number of errors in data entry. This reduces costs for companies and their customers by allowing them to make better decisions with more accurate information.
In addition, banks can use LEIs to streamline their client lifecycle management processes and save billions of dollars each year. By integrating LEIs into their trade, onboarding and entity data systems, they can dramatically improve consistency and efficiency while avoiding costly mistakes and delays. By doing so, they can offer their clients a superior service and more transparency.
10. Enhanced Trust
The LEI is a 20-character code based on an ISO standard that links back to a set of data attributes that provide clear identification of legal parties involved in financial transactions. This public, global and free-to-use information makes it easy for anyone to verify a company’s existence, location and ownership structure.
LEIs can be renewed annually and are updated if corporate details change. In addition, an LEI’s records link parent and child companies publicly – known as Level 2 data – which provides transparency into the ‘who owns whom?’ aspect of business identity.
The global business community is embracing the LEI as it enhances trust, efficiency and clarity of international trade. Regulatory bodies are regularly issuing rules requiring the use of LEIs, and extensive vendor stakeholder networks rely on it to improve KYC processes and shorten B2B onboarding.
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