In an increasingly interconnected financial world, ensuring transparency and accountability in transactions is a top priority. One key tool developed to meet this need is the Legal Entity Identifier (LEI), a globally recognized standard designed to uniquely identify legal entities involved in financial activities.
The LEI system, created in response to the 2008 financial crisis, aims to enhance financial stability by improving the identification of entities engaging in cross-border transactions. This system is based on the ISO 17442 standard, which defines the structure and governance of the LEI, ensuring uniformity and reliability across different jurisdictions.
What is an LEI and how does it work?
An LEI is a 20-character alphanumeric code assigned to companies, financial institutions, investment funds, and other organizations participating in financial transactions. The key advantage of the LEI is that it provides a standardised, global method for verifying the identity of these entities, reducing ambiguity and increasing market transparency.
The LEI is structured following ISO 17442, which ensures:
- Unique identification of each entity
- Reliable attribution and management of codes
- Recognition across jurisdictions, facilitating international transactions
Entities requiring an LEI include:
- Companies involved in stock markets and financial trading
- Investment funds and asset managers
- Banks and financial institutions
- Any legal entity engaging in regulated financial activities
Why is the LEI important?
The implementation of the LEI system has delivered several benefits to the global financial ecosystem, including:
- Enhanced risk management: Authorities can better track and assess financial risk exposure.
- Improved regulatory compliance: Many financial regulations, such as MiFID II, EMIR, and SFTR, require entities to obtain an LEI.
- Greater operational efficiency: The standardization of entity identification speeds up reporting and verification processes.
- Reduction of fraud and financial crimes: The ability to accurately verify counterparties reduces the risk of fraudulent activities.
Who issues LEI codes?
LEI codes are issued by Local Operating Units (LOUs), which are accredited by the Global Legal Entity Identifier Foundation (GLEIF). These organizations ensure that LEI registrations follow global standards and remain accurate over time.
To obtain an LEI, legal entities must apply through an accredited LOU, provide valid company details, and comply with regulatory verification processes. LEIs must also be renewed annually to ensure data accuracy and validity.
InfoCamere, a Local Operating Unit accredited by GLEIF (Global Entity Identifier Foundation) since 2017, is among the foremost operators in the world, managing over 180,000 LEI Codes.
The service, already operative in Italy, is now also active in the UK, Luxembourg, Malta, Ireland, Belgium, Austria, Australia, India, South Africa and Germany under the name ID LEI.
The role of LEI in the future of finance
As financial regulations continue to evolve, the adoption of the LEI system is expanding beyond its initial applications. Governments and regulatory bodies worldwide are increasingly integrating the LEI into areas such as cross-border payments, digital identity management, and supply chain financing.
In the coming years, the use of LEI codes is expected to play a critical role in strengthening transparency, reducing compliance costs, and fostering a more secure financial ecosystem.
If your organization is involved in financial transactions, obtaining an LEI is not just a regulatory requirement but also a strategic tool for enhancing credibility, security, and compliance.
