What Is an LEI?
Following the global financial crisis of 2008, an initiative was started to ensure that a shock of this magnitude to the financial systems would not occur again. This led to the development of the Legal Entity Identifier number or LEI. This code is required for all legal entities that operate within the financial system globally, allowing consumers to access viable information about any business.
What's the history of an LEI?
The idea behind the LEI was hatched during the 2011 G20 conference. This led to the Global LEI System (GLEIS), where it was determined that an agency was needed to ensure that there was a more transparent financial system.
In response, a unique identifier, the LEI, was created. This code is a combination of 20 letters and numbers.
The Benefits of LEI
This may sound like a good idea, but most people would not see how this benefits them. After all, what does an LEI do for a broader audience?
The purpose was to provide a worldwide database where information about every business could be stored and accessed. This benefits everyone; regardless of where you are, you can have a clear record of information related to any entities within the global financial system.
An LEI record contains public data such as the company's name, address, where they are registered, and whether they are a branch or owned by another parent entity.
This results in more security around international transactions, shortcuts to Know Your Customer (KYC) processes, and boosting global transparency.
What happens if a business does not register an LEI?
“No LEI, no trade” – Your trades will be blocked without an LEI code.
The legal entities requiring an LEI include financial institutions such as brokerages, banks, investment & insurance companies, and credit unions.