Following the global financial crisis a decade ago, issues with transparency in the markets led to a need for market participants to be able to identify each other quickly and efficiently. This is why the LEI was created.
It’s a globally unique key to standardized information on legal entities. It provides benefits to market participants and regulators.
Validity Check
The LEI system aims to prevent financial ambiguities and enable transparent identification of market participants on a single, standardised database. This is why it is rapidly being adopted worldwide and why a number of EU directives such as EMIR, MiFIR, MIFID II, SFTR and CSDR mandate its use. It also provides benefits to banks, brokers and other financial service providers who can leverage LEIs to replace costly and cumbersome KYC (Know Your Customer) standards.
The 20-digit LEI code identifies legal entities across sectors, countries and regulators. It includes a prefix uniquely assigned to each LOU, the entity-specific section constructed from alphanumeric characters and the check digits that verify the LEI’s data integrity through a standardized algorithm. This unique identifier also has an internet-friendly format, which makes it easier to verify online.
GLEIF and the LOUs work hard to maintain the quality of LEI data by performing regular checks and validations. They are committed to ensuring that the LEI data pool accurately reflects an LEI owner’s information and that each LEI conforms to the prescribed pattern of 18 alphanumeric characters followed by two digits.
It’s important to note that checking whether an LEI is valid does not ensure that the company is who it says it is. You must still perform other due diligence by reviewing a company’s website or registry listings in its country of origin. However, an LEI validation check is a great addition to any internal business process that involves identity checks and can help speed up the KYC process.
The LEI is a great tool for financial professionals who need to know exactly who they are dealing with, especially when operating in an international market. Previously, it was difficult to identify companies that operated in different jurisdictions by simply looking at their website or using local registry listings, which often contain incomplete or inconsistent data. It is also easy to see whether an LEI is valid by using a free LEI lookup tool that is available worldwide.
An LEI is a unique, global, public identifier for all legal entities participating in financial markets. The data it contains is easily accessible and free to use, similar to ISINs, and helps to improve transparency and due diligence in the industry. Authenticity and credibility are two of the most critical factors in international share trading, and the LEI can be a great asset in protecting your company’s reputation with customers and clients.
Duplicate LEIs
The LEI is a global system that connects to key information about legal entities participating in financial transactions. The 20-character alpha-numeric code based on the ISO 17442 standard offers clarity on who is who in the financial world. It also offers the ability to link with key data about the parent structure of a company, including its direct and indirect parent companies. The system was developed after the 2008 global financial crisis as a way to address transparency issues and is now backed by hundreds of regulators worldwide.
As the use of an LEI continues to grow, so too does the need for accurate data about these companies. It is important to ensure that the LEI is used in accordance with regulations and that it correctly references the party to avoid errors in reporting, trading and compliance. This means checking that the LEI is valid and that it has not been MERGED, RETIRED or has a registration status of LAPSED or PENDING_TRANSFER.
These statuses indicate that a replacement LEI should be assigned or that the LEI has been transferred to another LOU. In addition to these statuses, an LEI can also be DISCOVERED or DISALLOWED. DISALLOWED LEIs are those that were created in error or for reasons not compliant with the regulation of the system. DISCOVERED LEIs are those that were created by other LOUs and have not been validated as correct.
The process of ensuring that the LEI is valid and linking it with relevant data is called “challenging”. Anyone can complete an LEI challenge search and suggest new or amended information for a particular LEI. This is a powerful way to ensure that the LEI is valid and up to date.
Whether you are managing your own risk or providing services to other organizations, the quality of your LEI data has significant implications for the overall integrity of the system. Banks, for example, may use a variety of identifiers to identify their customers and vendors. An LEI can help consolidate these identifiers, making it easier to use the LEI for KYC and digital assurance purposes.
Renewing an LEI
As the business world continues to grow and evolve, maintaining data integrity is a challenge that businesses must face on a daily basis. One important aspect of this is ensuring that the Legal Entity Identifiers (LEI) associated with entities are kept current through regular renewal. This is crucial to ensuring that financial regulators have the most accurate information available when it comes to identifying parties to transactions and mitigating financial risks. I suggest you read more on the NordLEI homepage to learn better about the LEI system.
An LEI is a unique code that is assigned to legal entities to uniquely identify them worldwide for use in financial transactions and regulatory reporting. The system was introduced following the global financial crisis as a way to improve transparency and reduce risk in the markets. It has quickly become a standard for businesses to report and identify their counterparties. The LEI system connects to key reference data that enables clear identification of legal entities participating in financial markets, which provides transparency and enhances trust.
When registering an LEI, the process is straightforward and requires little time to complete. However, many people forget to renew their LEIs on a regular basis. When an LEI is not renewed in a timely manner, it becomes Lapsed and is no longer eligible for use in financial transactions. This can lead to costly penalties and lost opportunities for the business that has a Lapsed LEI.
GLEIF is working to reduce the number of lapsed LEIs by encouraging the renewal of LEI codes, and introducing new features that will help users keep their LEI data up to date. These include the addition of a new status indicator that will display whether an LEI is active, lapsed or transferred. This will help users to easily identify the status of their LEI and encourage them to take action to avoid a lapsed LEI.
As the number of lapsed LEIs continues to increase, it is more important than ever for businesses to keep their data up to date and on top of any changes. The easiest way to do this is through the use of a validated and up-to-date LEI search service. There are numerous providers that offer this service, including GetLEI. Prices and turn-around times vary, but it is worth taking the time to explore the options in order to find a service that matches your needs and budget.
Challenges to LEI Data
The LEI has the potential to be a valuable tool for businesses that need to know who they are dealing with. It can help them identify and mitigate risk in markets, connect companies that are regulated by different agencies, understand transactions in energy markets, paint a more complete picture of supply chains, track grants from the federal government to local recipients, and more. It can also make it easier for businesses to do business with the government.
But despite all the benefits that will flow from universal adoption and growth of the LEI, some challenges remain. One of the main hurdles is that some organizations may not see the value of an LEI, and so are hesitant to adopt it. Additionally, the cost model of the LEI—requiring entities to pay registration and renewal fees—may be a deterrent for some.
While it is clear that the global LEI system has grown since its conception, it will take time to ensure that everyone is using it. It is a complex endeavor, and there will be bumps in the road, but the benefits that will flow from universal adoption are significant.
To support the growth of the LEI, it is important that the data behind the identifiers is accurate and up-to-date.
Another challenge is ensuring that the LEI can capture the full scope of a firm’s operations. Currently, some LEIs include only the legal name of an entity and do not capture aliases or other names under which the company conducts business. Adding this additional data is an important step in ensuring that the LEI is a single, unique identifier.
A final challenge is the need to update reference data on an ongoing basis. The LEI system relies on its community of users to keep up with corporate actions that impact the LEI and the associated reference data. Corporate action information includes everything from stock splits and dividends to mergers, acquisitions, ownership changes, and spinoffs.
