The Legal Entity Identifier (LEI) code is a unique identity number for entities participating in financial transactions including cross border activity. The code is 20-digit number in a standardised format accepted globally. In the present economic scenario, multiple entities are participating in large number of financial transactions, which exposes them to various risks. With the use of the LEI number, it becomes easy to map different transactions to a particular entity. In the era of data analytics and predictive analysis, the unique identity number for financial transactions have paved way for creation of a rich database that can be used for better monitoring of financial systems, risk management, and enhanced transparency.
The code is linked to a set of key reference information of the entity in question. Once the code is assigned based on some of the references, it will be linked to that entity in perpetuity. The LEI data is publically available. Any interested party can search and access the information for free.
Entities can obtain their LEI code from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF). In India, the LIE code can be obtained from Legal Entity Identifier India Limited (LEIL), which has been recognised by Reserve Bank of India (RBI), as an issuer of LEI under the Payment and Settlement Systems Act 2007 and is accredited by GLEIF as the Local Operating Unit (LOU) in India for issuance and management of LEI.
Presently, in India, LEI must be obtained by the entity who participates in non-derivative markets. The details that are available from the LIE code include the name of company, registered office, unique identity number and entity status.
The process of assigning the LEI number is done after a careful scrutiny of the documents that include registration documents, registered address proof and KYC documents. The number is assigned only after the eligibility criteria have been complied by the entity.
In India, the total number of LEI code issued is 27,119 (1.9%). The Reserve Bank of India has recently provided extension for obtaining the LEI code to large corporate borrowers. Although the present number of LEI coded entities in India is very less, it is expected that the number will move up. According to A.K.Pattanaik, a former employee of Andhra Bank, “The LEI code is emerging as an important tool for due diligence. In the present era, when the number of shell companies is mushrooming, this data will be helpful to identify genuine entities. The code will have signifance in domestic as well as foreign trade.”
The code will be very useful for all the entities that enter into foreign trade with unknown parties. It is equally important for financial institutions like banks and NBFCs who provide trade finance facilities for cross border transactions. In 2011, the G-20 called on the Financial Stability Board (FSB) to provide recommendations for Global Legal Entity Identifier (GLEI) and a supporting governance structure. This led to the development of a global LEI system.
Adoption of LEI codes ensures better risk management. It is emerging as an important tool for promotingmarket integrity by containing market abuse and financial frauds. It will also help to create high quality, accurate financial data. The government as well as various other stakeholders need to promote LEI adoption in a big way in India.
— The author is a banking professional. She is presently working as a faculty at Baroda Apex Academy of Bank of Baroda, Gandhinagar.