Legal Entity Identifier (LEI)

The Legal Entity Identifier (LEI) is the starting point for achieving a globally connected network of verifiable, interoperable business identity and information. It is a unique 20-character alphanumeric code that enables anyone, anywhere in the world, to access clear, unique identification data about a legal entity. The LEI is based on the ISO standard 17442 developed by the International Organization for Standardization.

Every LEI is unique and can represent only one entity. Each entity’s LEI code connects to verified reference information from authoritative local sources, including the entity’s ownership structure, which is accessible in the Global LEI Index. In this manner, the LEI answers the questions of 'who is who’ and ‘who owns whom’.

The LEI is designed to be a scheme used to identify the legal entities relevant to any financial transaction, and it's applicable to legal entities, which include, but are not limited to, unique parties that are legally or financially responsible for the performance of financial transactions or have the legal right in their jurisdiction to enter independently into legal contracts, regardless of whether they are incorporated or constituted in some other way (e.g. trust, partnership, contractual). It includes governmental organizations, supranationals and individuals when acting in a business capacity (as stated by the LEI Regulatory Oversight Committee on 30 September 2015), but excludes natural persons.

The Global LEI System is composed of three tiers:
• Regulatory Oversight Committee: A group of public authorities from around the globe established in January 2013 to coordinate and oversee a worldwide framework of legal entity identification, the Global LEI System.
• Global LEI Foundation (GLEIF): Founded by the Financial Stability Board in June 2014, GLEIF is a not-for-profit organization created to support the implementation and use of the LEI. GLEIF services ensure the operational integrity of the Global LEI System.
• LEI issuing organizations: LEI issuers – also referred to as Local Operating Units – supply registration, renewal and other services, and act as the primary interface for legal entities wishing to obtain an LEI.

The LEI is designed for automated processing. It can also be conveniently used in other media interchange when appropriate (e.g. paper document exchange).

As defined in ISO 17442, the standard underlying the Legal Entity Identifier (LEI), the term ‘legal entity’ includes, but is not limited to, unique parties that are legally or financially responsible for the performance of financial transactions or have the legal right in their jurisdiction to enter independently into legal contracts, regardless of whether they are incorporated or constituted in some other way (e.g. trust, partnership, contractual). It excludes natural persons but includes governmental organizations and supranationals.

It is important to distinguish between being eligible for an LEI and being required to have one. As defined in ISO standard 17442, any legal entity that enters into a financial transaction is eligible for an LEI. Any legal requirement to have an LEI will come from national financial regulators.

Examples of eligible legal entities include, without limitation:

• all financial intermediaries;

• banks and finance companies;

• all entities that issue equity, debt or other securities for other capital structures;

• all entities listed on an exchange;

• all entities that trade stock or debt; investment vehicles, including mutual funds, pension funds and alternative investment vehicles constituted as corporate entities or collective investment agreements (including umbrella funds as well as funds under an umbrella structure, hedge funds, private equity funds);

• all entities under the purview of a financial regulator and their affiliates, subsidiaries and holding companies;

• sole traders (as an example of individuals acting in a business capacity);

• counterparties to financial transactions.

With regards to individuals, in principle, they should not be able to get an LEI. It should be noted however, that on 30 September 2015, the Regulatory Oversight Committee published a statement clarifying the conditions under which individuals acting in a business capacity are eligible to obtain LEIs. While individuals themselves cannot be assigned an LEI, they can obtain a Verifiable LEI (vLEI) role credential, which verifies their identity and role within a legal entity that holds a vLEI.

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LIEs are overseen by GLEIF (Global Legal Entity Identifier Foundation) which is a not-for-profit authority that oversees the Global LEI System, In short, GLEIF manages the framework, directory, and the organizations that create and maintain LEIs. It publishes the Global LEI Index, providing information, updated daily, on all LEIs issued to date. Any interested
party can easily access and search the complete LEI data pool free of charge on the GLEIF website using the web-based LEI search tool developed by GLEIF.

The creation of LIEs were initiated in 2011, when the Group of Twenty called on the Financial Stability Board (FSB) to provide recommendations for a global Legal Entity Identifier (LEI) and a supporting governance structure. This led to the development of the Global LEI System which, through the issuance of LEIs, now provides unique identification of legal entities participating in financial transactions across the globe. The FSB emphasized that global adoption of the LEI underpins multiple “financial stability objectives” and also offers “many benefits to the private sector”.

The Legal Entity Identifier (LEI) connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions. Simply put, the publicly available LEI data pool can be regarded as a global directory, which greatly enhances transparency in the global marketplace.

The publicly available LEI data pool is a unique key to standardized information on legal entities globally. The data is registered and regularly verified according to protocols and procedures established by the Regulatory Oversight Committee (ROC).

In the GLEIF blog post, entitled ‘The Global LEI System: A Look Back and a Look Ahead’ the former ROC Chair Matthew Reed recalled that the Global LEI System is designed to ultimately “answer three basic questions: Who is who? Who owns whom? And who owns what?” The information available with the legal entity reference data to date is referred to as ‘Level 1’ data. It provides the answer to the question of ‘who is who’.

On 10 March 2016 the ROC published a document, entitled ‘Collecting data on direct and ultimate parents of legal entities in the Global LEI System – Phase 1’. The paper sets forth the policy design of a process for collecting ‘Level 2’ data, to complement the existing ‘Level 1’ legal entity reference data. It describes the process of enhancing the reference data to include the ‘Level 2’ data that will answer the question of ‘who owns whom’.

Legal Entity Identifier (LEI) issuers – also referred to as Local Operating Units (LOUs) – supply registration, renewal and other services, and act as the primary interface for legal entities wishing to obtain an LEI. There are associated annual fees with LEI registration. LEI issuing organizations define the fee schedule in accordance with cost recovery principles. Of note, there could be a multi-year contract with payment at the time of LEI issuance or both an initial registration fee and an annual maintenance fee. LEI issuing organizations may also pro-rate the renewal fee when the renewal request occurs in advance of the full annual period. In the case of Validation Agents, the Validation Agent usually maintain the LEI for their clients as part of their client services.

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Sources:

https://www.gleif.org/

https://www.iso.org/home.html