The Legal Entity Identifier allows market participants in the European financial markets to identify the legal entity behind a trade. As of June 1, 2016, all credit institutions, investment firms, and clearing institutions are required by regulators to use lei in their transactions. It is also a requirement that any counterparty you deal with has a Legal Entity Identifier. In addition, any firm that wishes to act as a market marker or a central counterparty must also have its own Legal Entity Identifier number.
If you wish to participate in the European financial market, then the concept of Legal Entity Identifier becomes very crucial. This post will educate you about various aspects of Legal Entity Identifier that you must know to eliminate any confusion or complications when you trade in the European financial market.
What do you mean by legal Entity Identifier?
A Legal Entity Identifier is a unique 20-digit code issued to financial institutions, corporations, and other legal entities. The Legal Entity Identifier helps identify an entity across different jurisdictions and industries.
The Global Legal Entity Identifier Foundation (GLEIF) handles the Legal Entity Identifier, established in 2014 to create a global standard for Legal Entity Identifiers.
The Legal Entity Identifier is used to identify all entities subject to regulation under the Markets in Financial Instruments Directive (MiFID II). These include investment firms and financial institutions authorised by regulators and market infrastructures such as stock exchanges and central counterparties subject to regulation under MiFID II.
What Are The Benefits Of Legal Entity Identifier?
Legal Entity Identifier is an international standard for uniquely identifying a company in business transactions. Legal Entity Identifiers were developed by the International Organization for Standardization (ISO) and the Global Legal Entity Identifier Foundation (GLEIF). Here are the benefits of implementing a Legal Entity Identifier:
- Improved Governance And Risk Management: The Legal Entity Identifier allows businesses to better manage their operations and risks globally by providing a consistent set of identifiers that can be used to identify legal entities across jurisdictions and industries. The Legal Entity Identifier can be used as a reference point for regulatory compliance, financial crime monitoring and enforcement, trade finance, and other areas where the credibility of an organisation’s identity is essential.
- Reduced Costs: A single global Legal Entity Identifier code will give companies greater visibility into their supply chain activity through increased transparency at every level of business operations. This increased transparency will allow companies to better monitor risk throughout their supply chain while reducing costs associated with manual reconciliation processes associated with multiple identifiers. Companies operating in numerous countries can also avoid having to maintain separate sets of identifiers for each country in which they operate when using the Legal Entity Identifier as an identifier instead of relying on local ID numbers or other non-standardised identifiers, which may not always match up across markets.
Final Thoughts:
The Legal Entity Identifier, or LEI, is a valuable tool in the finance world. It lets you gather information about your company in one place and make it available to multiple agencies and markets. It helps you solidify your company’s position in different markets, which is crucial for any business that deals with global institutions.
