LEI Number ExplainedBank.pro Magazine Editor
Does your company trade with stocks, bonds, forex, or any other in the financial market? If you are acquainted with such, you must have heard of the legal entity identifier (LEI) number. However, what exactly is it? How does it work? Who needs it? What are the benefits of having the number? How can you set up one? Please read on to get the answers to these and much more.
What is an LEI Number?
A legal entity identifier (LEI) number is a unique code that is used by local and global companies dealing in trading securities for identification on an international scale. It confirms the identity of the legal entities and thus enhances transparency in financial transactions such as stock trading, forex, and bonds. Moreover, the LEI works as a registration number for a legal entity that connects the transactions to key information.
A LEI contains a 2-step level of data with the following information;
Level 1; Identification
Here, you get the answer to who is who? Therefore, the information is about the legal entity; its legal name, legal address, and registration number among others.
Level 2; Ownership
The second level has the information on who owns whom? Thus, the information provided is relevant to the ownership of the legal entity and its structure.
So, what is required to get the LEI? Any legal entity that needs this number must perform financial trading in a variety of countries to get the legal entity identifier.
Also, the system is not free. There are different prices charged depending on the service offered. Any legal entity getting a new LEI number must pay an annual fee for registration. On the other hand, if an existing legal entity wants to change its LEI, it must pay a renewal fee. Notably, the prices for these two will vary. Overall, the fees charged on the system cater to the administration, maintenance of the system, and regulations.
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Also, the legal entity identifier is an alpha-numeric code that is ISO 17442 standardized. The LEI has 20 characters (a combination of numbers and letters), which are broken down into;
- Characters 1-4; Show the identity of the local operation unit (LOU) issuing the legal entity identifier (LEI).
- Characters 5–6; have a value of 0
- Characters 7-18; identify the legal entity. They are unique to specific legal entities.
- Characters 19-20; verify the identity of the legal entity. They are thus useful for the verification process.
How Does LEI Work?
The LEI is a system that runs on legal requirements and compliance regulations. It enables and enhances transparency within the financial markets. Also, it identifies legal entities across the globe and their ownership. Therefore, it is like a data pool with information about legal entities handling financial transactions. This data pool is publicly available and is thus key to the standardization of information. Furthermore, the data in the system is registered and undergoes regular verification.
Importantly, there are three different authorities in place to ensure the system is reliable, credible, and transparent. These are;
- Regulatory Oversight Committee (ROC); It consists of supervisory authorities that oversee and uphold the principles governing the system. It is in charge of protocols and procedure guiding data registration and verification in the system.
- Local Operation Unit (LOU); This is a network of public and private companies that issue LEI codes to legal entities. Therefore, their function is to supply registration and take control of the renewal of the LEIs. Any legal entity wishing to have an LEI must pass through an LOU.
- Global Entity Identifier Foundation (GLEIF); This authority has a vision of having a single universal registration number for every legal entity across the globe. Notably, the Foundation controls the issuance of the LEI numbers.
Who Needs an LEI Number?
Does anyone need the LEI number? Notably, natural individuals are exempted from having the number. On the contrary, any legal entity in the financial markets or those engaging in financial transactions requires the code. Thus, any entity that carries out financial transactions e.g bonds, stocks, and forex, requires an LEI. Such institutions include banks, insurance companies, investment firms, brokerages, and credit unions. Besides, it is a requirement for some industries to have the number.
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Why Do You Need the LEI?
Having known what an LEI is, and who needs it, you may be wondering why it is important for legal entities to have the code. First, having an LEI means a legal entity dealing in financial trading will be easily identified. Therefore, it acts as a global identity card for your legal entity, and this improves its credibility. The LEI gives a clear and unique identification of the legal entities dealing in financial transactions.
It also helps to know who owns which legal entity, thanks to the use of a global reference system. Furthermore, the information provided on the system is standardized.
As earlier discussed, the LEI enhances transparency within financial transactions and systems. How is this beneficial? When there is improved transparency in a system and within the transactions taking place, there are fewer cases of fraud or money laundering.
Moreover, if you are in the US, you need the LEI for reporting transactions. The country has several regulations requesting the same. It is no wonder the US financial service economy represents 14% of registered LEIs globally.
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Remember, the LEI is continually being embraced as a standard globally. With this in mind, don’t you think it is good for your legal entity to have it?
How to Get an LEI Number
Having known the importance of having an LEI number, you are probably asking yourself how you can apply for the same. After all, there are so many legal requirements and regulations surrounding this code. So, is the application process complicated?
Contrary to what you may be thinking, you can get the service easily. For instance, you can take advantage of Bankaccount.pro and get your LEI number easily.
Does Your Legal Entity Have an LEI?
An LEI is a unique number that identifies legal entities dealing in financial transactions. It is globally recognized and is controlled by various legal rules and regulations. There are different benefits of having the number. For instance, it gives a company a global identification. Besides, it enhances transparency and reduces the chances of fraud and risks of money laundering. The good thing is you don’t have to hassle getting the number for your legal entity. With Bank.pro, you can easily and quickly get the service done for you.
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