What Is An LEI Number?
What Is an LEI?
An LEI is a Legal Entity Identifier code. It is a unique alphanumeric code that has 20 characters and is based on the ISO 17442 standard. The LEI code is an identification number for legal entities that wish to take part in financial transactions in international markets. The LEI code helps to make legal entities easily identifiable and provides key information for financial transactions. More than 1.9 million LEIs have been issued around the world, according to the Global Legal Entity Identifier Foundation.
An LEI number is used in financial transactions, such as trading stocks, bonds, or currency. LEIs are required by firms to fulfil their reporting obligations under financial regulations and objectives. They also help to match and aggregate market data for transparency and regulatory reasons. An LEI enables any legal entity carrying out financial transactions to be identified in any jurisdiction globally. The LEI system has helped to correct the vulnerabilities in the global financial system, many of which became apparent during and after the 2008 financial crash. A need for a global financial identifier has existed for decades, but it is only relatively recently that one has been established.
An LEI number consists of several parts. The first four digits identify the LOU (Local Operating Unit) that has issued the LEI, and the next two digits always have a value of 0. Characters 7-18 are unique to each entity and the remaining two digits are used for verification purposes.
Publicly available LEI data includes information such as the legal name of the entity, the legal jurisdiction, registration authority, LEI registration date, and the status of the entity. This is all Level 1 data, that answers the question ‘Who is who?’. Level 2 data provides information regarding parental relationships in corporate structures, outlining the parent companies and any subsidiaries. The Level 2 data aims to answer the question ‘Who owns Whom?’. Furthermore, data regarding the initial registration date, last update and next renewal date of the LEI code, as well as the registration status and managing LOU can also be found among the LEI reference data.
What makes the global LEI system trustworthy in the long-run, is the requirement to renew the LEI codes annually. During the renewal process, the data of the entity is validated again, therefore guaranteeing that the LEI data is always up to date and can be safely relied upon.
Who Needs an LEI Number?
Any entity that is considered a legal entity is able to apply for an LEI number. LEI codes are required by legal entities carrying out financial transactions or operating within the financial system. In particular, legal entities in the UK, EU, and the US are likely to require an LEI. In many circumstances, a legal entity may be prevented from trading if it does not have an LEI. LEI numbers might be required by regulatory agencies but many companies also ask for an LEI.
There are currently about 100 regulations in place in different jurisdictions, where the use of LEI codes is required.
Some of the legal entity types that might be required to have an LEI include:
- Financial intermediaries
- Banks, investment companies, and lenders
- Trade OTC derivatives (except private individuals)
- Self Managed Superannuation Funds traders and trustees
- Investment Vehicles, mutual funds, hedge funds
- Pension schemes
- Commodities trading
- CFDs (Contract for Differences)
- Securities transactions, SFTR reporting
- Entities listed on a stock exchange
A private individual is neither required, nor allowed to receive an LEI code.
Is an LEI Mandatory?
As of the 3rd of January 2018, all entities that wish to take part in transactions in the European financial market (Bonds, Stocks, FX Forwards, Swaps and any other derivatives or securities) are required to have an active LEI number. This is the date when the European Union Markets in Financial Instruments Directive (MiFID II) and its accompanying Markets in Financial Instruments Regulation (MiFIR) came into effect. Every investment service provider is required to check that the trader has and active LEI code.
It is not mandatory to have an LEI when just holding securities, however it is strongly recommended, as it is not possible to enter into a transaction without one.
How to Obtain a Legal Entity Identifier?
To obtain a legal entity identifier, an LEI application must be completed. An LEI can be obtained from a Local Operating Unit (LOU), which are the bodies that issue LEI codes or from a LEI registration agent, such as LEI Lookup. The LOU’s supply registration and renewal, as well as other services, and must be accredited by the Global Legal Entity Identifier Foundation (GLEIF) in order to be authorised to issue LEIs. The registration agents provide a link between the customers and the LOU’s, taking care of the whole process and making it as easy as possible for the end customer.
Read more about how to obtain a legal entity identifier.
By becoming a member of the Global LEI system via GLEIF accreditation, LEI issuers show that they are committed to data quality and customer service. The issuing LOU is ultimately responsible for the data accuracy.
A legal entity is not limited to using an LEI issuer in their own country. They can access the services of any LOU that is accredited to issue LEI codes in its authorised jurisdictions. To find an issuer that is authorised for any jurisdiction, GLEIF has a search function on their website. Simply select the jurisdiction(s) to find issuers before and the results will be displayed in a table.
Once the service provider has been chosen, the application process needs to be completed. LEI codes are valid for 1 year, and need to be renewed annually. Many service providers offer multi-year packages, and will take care of the yearly renewal themselves.
The application process is usually easy, asking the customer to provide the entity data. Some of the information that is requested includes:
- Entity name
- Company number or registration ID
- Applicant name and contact information
- Entity address
The entity data is validated from the relevant official business registry if possible. In case of Trusts or Pension funds, or any other entity type that is not listed in an official registry, the customer is usually asked to provide some form of official documentation, from where the entity data could be validated. After submitting the application and paying the fees, the data will be processed and the LEI issued. It will be published to the GLEIF database and the customer will also be notified that the process is complete.
How Much Does an LEI Cost?
The cost of registering for an LEI number can vary. LEI Lookup offers discounts if a multi-year package is chosen. When opting for a 3- or 5-year registration, LEI Lookup will take care of the subsequent annual renewals, so that the customer does not need to take any action.
Each LEI service provider is free to set their own prices for registration and renewal. GLEIF charges a fee for every LEI issued and this fee is usually included in the price that is quoted by the different service providers. Agents can also offer additional services, for example a fast-track service, at a premium price.
Who Issues the LEI Codes?
LEI numbers can only be issued by GLEIF-accredited Local Operating Unites (LOUs). GLEIF itself does not issue any LEI codes. All accredited LOU’s can be found on GLEIF’s website.
Besides LOUs, there are many Registration Agents, such as LEI Lookup, that form a link between the end customer and the LOU. Registration Agents help legal entities obtain information about LEI codes, offer registration, renewal, transfer and many other services, as well as manage the communication between the entity and the LOU.