What is an LEI?
A Legal Entity Identifier (LEI) is a 20-digit alpha-numeric code based on the standard developed by the International Organization for Standardization (ISO).
LEI codes enable clear and unique identification of legal entities which are participating in financial transactions; examples include but are not limited to, brokerages, banks and investment companies The aim is to facilitate enhance transparency in the global markets. The LEI dataset can be thought of as a global directory, providing ownership information on market participants.
The LEI code is constructed by several parts, the first four digits identify the local operating unit, the next two are always 0, characters 7-18 are unique to each entity and the last two are used for verification purposes. See the diagram below:
Breakdown of an LEI
How are LEIs used?
The LEI is used in financial transactions to help match and aggregate data as well as track activity by entities across different jurisdictions. The LEI needs to be renewed annually, enabling the data to stay up to date and accurate. This creates a global network which regulators and participants can leverage to understand ‘who is who’ and ‘who owns whom’.
Who needs an LEI?
LEIs are required by any entity operating within the financial system acting as a counterparty in transactions or fulfilling secondary roles. This includes companies that buy and sell or make a market in financial securities.
Under current regulations in many jurisdictions (e.g. UK and EU), a legal entity may be prevented from trading if it does not have an LEI.
LEIs Within Regulatory Reporting
Since the financial crisis in 2008, regulators have been continually trying to boost the transparency of the financial markets as well as the data, they monitor in an attempt to stop the failures of the past occurring again. When fulfilling regulatory reporting obligations, any entity that has an LEI must be reported with this identifier so that overseeing bodies are able to monitor and assess any transactions taking place under the umbrella of the legal entity across different jurisdictions. LEIs have created a harmonious playing field for enhanced oversight in the area of transaction reporting.
We have prepared a summary of the LEI requirements for the major reporting regimes.
How can TRAction assist you with your LEI?
TRAction’s mission statement is ‘Trade Reporting Simplified’, this means we stay on top of and assist our clients across the entire spectrum of their regulatory reporting obligations.
We provide our clients with assistance to lodge their initial LEI application and handle their annual renewal. This helps mitigate scenarios where the LEI inadvertently lapses and prevents on-time submission of transaction reporting data. We also find that many investment firms find the renewal process complicated and fiddly, so doing many of them each year means the TRAction team are able to help streamline processes and further reduce the workload of compliance teams.
As this area of the industry develops, TRAction remains committed to staying ahead of regulatory developments and monitoring for changes that may affect our clients. Don’t hesitate to contact us if you would like to know more.