LEI Code Registration
What is LEI Code?
The Legal Entity Identifier (LEI) is a 20-character alpha-numeric code used to uniquely identify parties to financial transactions worldwide. It has been implemented to improve the quality and accuracy of financial data reporting systems for better risk management. It is used to create a global reference data system that uniquely identifies every legal entity in any jurisdiction that is party to a financial transaction. It can be obtained from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF), the body tasked to support the implementation and use of LEI.
Which transactions should include LEI information?
All single payment transactions of ₹50 crore and above undertaken by entities (non-individuals) should include remitter and beneficiary LEI information. This is applicable to transactions undertaken through the NEFT and RTGS payment systems.
In case of RTGS, both customer payment and inter-bank transactions meeting the above criterion should include LEI information
LEI Code Applicability
Here are the documents required for obtaining an LEI, as specified by LEIL:
- Audited Financial Statements: These are mandatory and provide a detailed account of the financial health and transactions of the entity.
- Letter of Authority: This must be in the format specified by LEIL or a General Board Resolution authorising the application for an LEI.
- Documents for Holding and Ultimate Parent Companies: For entities that are holding companies or ultimate parents, audited financial statements are needed. Alternatively, an Auditor’s Certificate in the format specified by LEIL can be submitted to demonstrate compliance and financial integrity.
Importance of LEI Code
The importance of a Legal Entity Identifier (LEI) code lies in its ability to enhance transparency and security within the global financial system. Here are the key reasons why LEI codes are crucial:
- Improved Transparency: LEIs clearly identify legal entities engaged in financial transactions worldwide, reducing the ambiguity that can arise from similar names or different business units within the same company.
- Risk Management: By providing precise and accessible data about entities, LEIs help financial institutions and regulators manage counterparty and credit risks more effectively.
- Regulatory Compliance: Many regulatory frameworks require LEIs for reporting and compliance purposes. Entities without an LEI may face restrictions or be unable to participate in certain financial transactions.
- Operational Efficiency: LEIs simplify various operational processes by providing each entity with a standardised, universal identifier. This can streamline transactions, reporting, and record-keeping.
- Fraud Prevention: With LEIs, the financial sector can more easily trace transactions back to the entities involved, helping to detect and prevent fraudulent activities.
- Market Integrity: LEIs contribute to the integrity of financial markets by ensuring that all participants are clearly and consistently identified, making it easier to assess and control systemic risk.
Overall, LEIs are foundational in making global financial markets more stable, transparent, and efficient.
Documents Required for LEI Code
Here’s a breakdown of the entities required to have an LEI:
The Legal Entity Identifier code’s applicability spans a wide spectrum of entities involved in significant financial transactions. Here’s a detailed overview of where and how LEI codes are required:
- Financial Institutions: Banks, insurance companies, and non-banking financial companies must have an LEI to facilitate the monitoring and regulation of financial transactions.
- Stock Market Participants: Entities listed on stock exchanges or those participating in the depository system need an LEI, as mandated by the Securities and Exchange Board of India (SEBI).
- Derivatives and Forex Markets: Participants in over-the-counter derivatives and foreign exchange markets are required to possess an LEI to help track transactions and manage counterparty risk.
- High-Value Transaction Entities: Any legal entity involved in transactions exceeding Rs.50 crore through systems like the Real Time Gross Settlement (RTGS) must have an LEI.
- Large Borrowers: Entities with fund-based or non-fund-based exposures of Rs.5 crore or more, as well as corporations with financial exposures of Rs.50 crore or more sourced from banks, UCBs, NBFCs, and AIFIs, are required to obtain an LEI.
- Public Securities Transactions: Issuers, guarantors, borrowers, or security providers dealing with securities issued to the public, listed on a stock exchange, or included in the depository system must secure an LEI.
