What is an LEI Number?
A Legal Entity Identifier, also known as LEI, refers to a unique alphanumeric code used to distinguish legal entities involved in financial transactions. This number is a requirement for entities that want to do business on the international market. It is a 20-character alphanumeric code that is based on the 17442-standard developed by the International Organization for Standardization (ISO). So, a given LEI number can only represent one legal entity.
The LEI number can be used to know more details about the legal entity, which creates transparency on the international level. With an LEI number, you will get to know the entity's ownership, which clearly answers the question of "who is who" and "who owns whom." The other information that can be extracted from the LEI number includes;
- The official address of the entity
- The country of origin for the entity
- Date when LEI number was acquired
- Date when the LEI number will expire
- Date when LEI number was last updated (if applicable)
Before introducing the LEI number standard, each country had its identification system, which created a lot of confusion on the international market. With the older system, it was harder to identify the transaction details of the different entities, identify the counterpart of financial transactions, and computing the total risk amount.
It is after the 2008 world financial crisis that the LEI numbers were introduced to help resolve these challenges.
Who needs an LEI number?
Any legal entity involved in financial transactions or working within today's financial system needs an LEI number. The urgency to get an LEI number is even more if an entity wants to operate or transact in markets within regions like the EU, UK, and the US. Most organizations in these regions do not trade with entities that don't have the LEI number.
Even if your entity is not in the countries that require LEI numbers, you'll need to acquire this number first if you want to transact with companies in these countries.
Who issues the LEI number?
The Global Legal Entity Identifier Foundation is responsible for the supervision and integrity of the LEI system. However, LEI numbers are issued by Legal Operating Units (LOU) under the supervision of the GLEIF and the Regulatory Oversight Committee (LEI ROC).
So, if your entity needs an LEI number, you will have to reach out to the LOU or any of their partners to get one. The LOU will issue you the LEI number, register it, and also avail it to the general public and the regulators at no cost. If you want to get the LEI number of any company, simply visit LEI-Registrar.com and input the entity's name whose LEI number you need.
What Is The Purpose of an LEI number?
A legal Entity Identifier (LEI) number is basically a 20-character reference code used by legal entities that want to do business internationally. This identifier was introduced in 2011 when the G20 countries agreed on getting an identifier code that companies can use to transact in global markets. This identifier is unique for every entity.
For example, Microsoft’s LEI number is INR2EJN1ERAN0W5ZP974. So, this is the code that Microsoft will always have to present while doing business on the international market. Transacting with companies within the EU, UK, or the USA requires having an LEI number as a must. This takes us back to our primary question; “What Is the Purpose of an LEI number?”
The primary purpose of having an LEI number is to prove to your trading partners and regulators that your organization is a legally recognized entity. That is why several countries, especially those part of G20, make it mandatory to have an LEI number before operating or doing business in their country.
The good news is that acquiring the LEI number is not a complex process if you have all the requirements. If you want to have it done fast, you can apply for one on this LEI registration website and have it ready within couple of hours.
Besides being allowed to do business on the international market, you will get several other benefits from having an LEI number.
Find out more about origins of LEI and GLEIF in A case for LEI article.
Benefits of LEI number
- Creates confidence amongst your international clients: If you are running a small business or a startup, having an LEI is one of the ways you can build trust amongst your customers.
- It is widely used for Know Your Customer (KYC) practices in several countries: So, having it will reduce the validation procedure you will go through while doing business locally and internationally
- It will soon be a requirement to make international payments: Your LEI number will soon be required by Swift when your business is making payments across borders.
- Regulations may mandate having one: Several countries, including the USA, UK, and nations under the EU, will soon make it a requirement for every registered entity to have an LEI number before they start operating. You can consider acquiring your LEI number now to avoid getting into the last-minute panic when such regulations are implemented.