In the past, there has not been as much global trading as there is in recent years.  In fact, because of the internet boom people are working with each other throughout the world more than they ever have.  This is not going to stop as the world is moving into a different place.  However, this has caused a bit of a problem as well.  Things such as who owns what is a big thing when looking at the stock market and stock exchanges.  There has never been one place where one could go to get the information on who owns what portion or what company.  As the markets opened up to the world more and more fraud, market abuse and financial crisis.  

That is where the thought of legal entity identifier (LEI) has come into play.  In 2008 there was a financial crisis that took place that made us very aware that there needs to be more transparency in the marketplace.  People need a place to go to to see who actually owns what business.  It actually stems to one particular incident that involved hundreds of properties owned by the Lehman Brothers.  Regulators and capital market players needed to know this information on them and their 100s of properties.  And, what they found was this process was not easy.  

How do LEIs work?
They are pretty simple really.  They are a code that is given to a business that is their own unique 20 character code that is assigned to them.  This code has been developed by the International Organization of standardization.  (ISO)  This has allowed the public to better evaluate a business and its entities.  This number can greatly reduce the confusion at the banking level as well.  For example, we have found that it is common for large corporations to be titled within databases on average five different ways.  This means that their entity was entered into their systems 5 different ways and it is impossible for those searching for the information to easily find it.  With a LEI, there is just one entity that everyone uses for that particular business.  

Additionally, with the LEI systems in place, there is a better onboarding of new companies.  This allows this lengthy process to be shortened up.  This in return means less frustration and loss of interest during the onboarding process.  With sleeker onboarding processes there are fewer risks and time is used more efficiently.  

Who requires LEI numbers?
LEIs are used to match the identity of a business with its owner.  It is required by:

  • Capital Requirements Regulation (CPR) which are the financial institutions and credit institutions.
  • European Markets Infrastructure Regulation (EMIR) which are the counterparties to derivatives and contracts as well as beneficiaries, clearing members, brokers, and CCPs.
  • Alternative Investment Funds Directive (AIFMD) which are the funds and fund managers.
  • Solvency II are insurance companies and pension funds.
  • Credit Rating agencies regulation (CRAR) which are the entities of credit rating agencies.  
  • Alternative Investment Funds Directive (AIFMD)with are the fund managers and funds.
  • Securities Financing Transactions Regulation (SFTR) which are the security financing transactions and beneficiaries.  This includes the obligations and rights that arise from these as well.  
  • Transparency Directive issues of financial things that are listed on regulated markets.
  • Markets in financial instruments directive II (MiFID II)