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Legal Entity Identifiers – What Are They & What Is Their Purpose?

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What Are Legal Entity Identifiers?

Legal Entity Identifiers (“LEI”) are global reference codes used to identify the following legal entities engaged in financial transactions:

  • Financial intermediaries;

  • Entities listed on an exchange;

  • Entities that issue equity, debt or other securities for other capital structures;

  • Entities that trade stock or debt;

  • Investment vehicles and alternative investment entities constituted as corporate entities or collective investment agreements including hedge funds, private equity funds, umbrella funds as well as funds under an umbrella structure, etc.; and

  • Banks and finance companies.

Legislation

The relevant legislation in the US is the Dodd-Frank Act (DFA) and in Europe, the European Markets Infrastructure Regulation (648/2012/EU) (EMIR).

What Is The Purpose Of LEI?

The LEI system was introduced by the Financial Stability Board (FSB), an international organisation which develops and promotes the implementation of regulatory and supervisory policies relating to the worldwide financial system. The FSB was established, as a successor to the “Financial Stability Forum”, after the 2009 G-20 summit in London. FSB members include, amongst others, the European Central Bank, the European Commission, the International Monetary Fund, the Organisation for Economic Coordination and Development & the World Bank. 

The LEI system was initiated as a response to the financial crisis and is aimed at improving transparency in financial data systems. Presently, there are several methods of identifying entities across various markets and countries. However the Global LEI System (GLEIS), which was partially launched this year, when fully operational will ensure that there is just one standard system.

The GLEIS allows for the identification of all parties (both receiver and sender) to the transaction, whereby each entity is registered and assigned an individual code. Accordingly, the system can be used as a management tool in analysing counterparty risk. Importantly, it is envisaged that the GLEIS will help contain market abuse and curtail financial fraud by allowing risk managers and regulators to identify parties to financial transactions immediately and accurately, as well as enhancing accuracy of financial data in general.

Regulatory Oversight Committee

The Regulatory Oversight Committee (ROC) is a committee which was established after recommendations made by the FSB in relation to the GLEIS and was subsequently endorsed by the G-20. The ROC will have the ultimate responsibility for the governance of the GLEIS.

In January 2013, the ROC assumed responsibility for the system from the FSB and launched it in March 2013. It is estimated that it will take 12 to 24 months for it to be fully operational. Further information about this committee can be found here

Central Operating Unit

The Central Operating Unit (COU) is the operational arm of the LEI system. The COU will ensure that a uniform global standard is reached and that protocols are delivered effectively at a local level.

Local Operating Units

Local Operating Units (LOUs) are the local implementers of the global system. A unique 20-character alphanumeric LEI code will be issued to entities by appointed LOUs.

There are currently no fully functional LOUs, as the global standard setter, the COU, is not yet established. A pre-LEI code process has been established to assist relevant entities who are already required to have a pre-LEI code and for entities who wish to prepare for LEI implementation. There are some pre-LOUs already in place, such as the London Stock Exchange, sponsored by the Financial Conduct Authority (FCA) and the Irish Stock Exchange, as sponsored by the Central Bank of Ireland. These pre-LOUs may issue pre-LEI codes. Other countries which have established pre-LOUs include the US and Germany and other pre-LOUs will soon be operational in Turkey, Palestine, Russia and France, each issuing pre-LEIs.

How Do Entities Obtain A Pre-LEI?

To obtain a pre-LEI an entity must register with a pre-LOU.

Once an entity has obtained its pre-LEI, it will have continuing obligations; it must declare any material changes such as an address change and it must re-certify annually. Again, during re-certification, it must declare any material changes.

To speak with a member of our banking team regarding the LEI, please contact us.

LEI Inforgraphic

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