As most companies know, the process of client onboarding takes time and due diligence. Getting to ‘Know Your Customer’ before you do business is essential, particularly, when doing business across borders. Previously, this was not only time consuming but costly. Thankfully the introduction of the LEI Number (Legal Entity Identifier) has made the whole process much easier and more cost-effective.
What is an LEI Number and What Does it do?
A Legal Entity Identifier (LEI) is a unique alphanumeric 20-character code that is used to identify legal entities across the globe. An LEI delivers transparency and security of entity identification among financial parties, enabling traceability of the transactions.
Background to the Legal Entity Identifier
The Legal Entity Identifier (LEI) was introduced globally in response to the financial crisis and permits immediate and accurate identification of all parties to a financial transaction. The 2008 recession shone a light on the fact that there was no single identification code system available globally with every country having its own unique identification system in place. While this did not cause too many issues when companies were trading within their own Country it led to a variety of problems when cross boarder financial transactions took place.
At its November 2011 Cannes Summit the G20 called upon the Financial Stability Board (FSB) to take the lead in developing recommendations for a global LEI and supporting governance structure. The FSB recommendations were subsequently endorsed by the G20 at its 2012 Los Cabos summit. A Global LEI System was then introduced that provided, through the issues of LEI’s, unique identification of legal entities participating in financial transactions across the globe.
Should My Business Have an LEI Number?
The simple answer is ‘Yes’ if your company is involved in financial transaction or operates within the financial system. Having an LEI Number has the potential to take the complexity out of business transactions as it is a quick and reliable method for companies to identify legal entities. LEIs are mandatory for all banks, brokerages, investment companies, trading companies, insurance firms, credit unions and other businesses providing financial products and services.
How to Search the LEI Database
LEI Searches can be carried out using the LEI Directory. The LEI Directory allows you to navigate the LEI Index, access the Global LEI Database and find any LEI Number in real time. You can search the database using the name of the company or the LEI Number.
What Information Does a Legal Entity Identifier Give?
An LEI Search provides the following information:
- The ownership structure of a legal entity
- The company registered name
- The company number
- The date of incorporation
- The registered address
- Parental structure
- The renewal date
How to get an LEI Number and How Much Does It Cost?
Local Operating Units (LOUs) such as LEI Worldwide make the process accessible and simple for Legal Entities to Obtain an LEI Number. LEI registration is a quick process, and the application form can be filled out by any member of your organisation with access to the required data. The initial cost of obtaining an LEI Code through LEI Worldwide starts at €75. This includes annual registration, management, maintenance, and automatic renewal notifications. There are different registration periods available ranging between 1-3 years.
Is it Possible to Transfer an LEI from one Service Provider to Another?
The answer is ‘Yes’. You may decide to switch service provider due to a few reasons such as service quality or price. There is a common misconception out there that you must obtain your LEI Number from a provider based in your own Country. In the interest of fair play, you can get an LEI Number from most Local Operating Units.
What Happens if I don’t Renew My LEI Number?
If an LEI Number is not renewed it will show a red icon and be labelled as ‘LEI Lapsed’. This is not good as it could indicate that the information contained within could be outdated. LEI’s should always be renewed on time.
Comparing Then to Now
It is very apparent the huge benefits the introduction of the LEI has for companies conducting financial transactions across borders. One in fact would wonder how businesses managed at all before the Global LEI system was introduced as it was difficult to know who you were doing business with. The Legal Entity Identifier has solved this problem and helped create a transparent financial industry.
Interesting Related Article: “How can LEI numbers help in your Know Your Customer (KYC)“