What is an LEI code?
A Legal Entity Identifier (LEI) is a global standard identifier used to identify legal entities involved in financial transactions. This can include companies, public authorities and other organizations that trade in securities such as stocks and bonds.
Why are LEI codes important for the security of financial transactions?
The purpose of an LEI code is to increase transparency and security in financial transactions. By assigning a unique identifier to each legal entity, it makes it possible to track and identify the parties to a transaction across different countries and financial institutions.
LEI codes have become mandatory for certain types of financial transactions as a result of international regulations. This is due to the need to identify the parties to transactions to reduce the risk of illegal activity.
How do LEI codes work?
LEI codes work by assigning a unique identifier to each legal entity. This code consists of 20 alphanumeric characters and is registered in the Global LEI System (GLEIF), which is a global database of LEI codes. When a transaction takes place, the parties can use the LEI codes to identify each other and validate their legal status.
To obtain an LEI, a legal entity must register with an authorized LEI registrar. The registrars are responsible for validating and verifying information about the legal entity and issuing the LEI code. Once the code is assigned, the legal entity must renew its code once a year for the LEI to remain valid.
What are the benefits of having an LEI code?
Having an LEI code can provide several benefits for legal entities involved in financial transactions. Some of the benefits include:
- Increased security: By using LEI codes, parties to a transaction can validate each other's identity and legal status, helping to reduce the risk of fraud and illegal activity.
- Transparency: LEI codes make it possible to track and identify the parties to a transaction across different countries and financial institutions. This increases transparency in the market and helps prevent hidden and illegal activities.
- Regulatory compliance: As mentioned, LEIs have become mandatory for certain types of financial transactions as a result of international regulations. By having an LEI code, a legal entity ensures that it complies with applicable legislation and avoids potential fines or penalties.
- Easy access to financial markets: Many financial institutions and trading platforms require their customers to have an LEI code in order to trade. By having an LEI code, a legal entity ensures that it has access to a wide range of financial markets and investment opportunities.
- International recognition: LEI codes are a global standard identifier, which means they are recognized and accepted by financial institutions and authorities around the world. By having an LEI code, a legal entity can easily participate in international financial transactions and collaborate with international partners.