Legal Entity Identifier

Legal Entity Identifier: Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Legal Entity Identifier: Context

• RBI has recently said that from October next year, companies will have to quote the legal entity identifier (LEI) number so as to undertaking cross-border transactions of Rs 50 crore or more.

What is LEI?

• The Legal Entity Identifier (LEI) is a 20-character alpha-numeric code used to uniquely identify parties to financial transactions worldwide.
• The Legal Entity Identifier (LEI) is a reference code — like a bar code — used across markets and jurisdictions to uniquely identify a legally distinct entity that engages in a financial transaction.
• The LEI is designed to be a linchpin for financial data — the first global and unique entity identifier enabling risk managers and regulators to identify parties to financial transactions instantly and precisely.

Why LEI needed?

• When Lehman Brothers collapsed in September 2008, regulators and private-sector firms were unable to assess quickly and fully the extent of market participants’ exposure to Lehman and how the vast network of market participants was connected.
• The financial crisis underscored the need for a global system to identify financial connections, so regulators and private sector firms could better understand the true nature of risk exposures across the financial system.
• The establishment of the global LEI system is a significant achievement that responds to these vulnerabilities and provides meaningful, long-term benefits for the public and private sectors.

LEI purpose

• To improve the quality and accuracy of financial data reporting systems for better risk management.
• To create a global reference data system that uniquely identifies every legal entity in any jurisdiction that is party to a financial transaction.

LEI 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.
• In India, LEI can be obtained from Legal Entity Identifier India Ltd. (LEIL), which is also recognised as an issuer of LEI by the Reserve Bank.

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.
• It 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.

Is LEI required for Central Government or State Governments and/or their departments?

• It is not necessary for Governments or their Departments / Ministries to obtain LEI or mention LEI number for payment transactions in NEFT and RTGS.
• However, Corporations / Undertakings, including those fully owned by the Government, shall need to obtain LEI.

Is LEI required for individual customer transactions?

• No, LEI is not required for customer transactions where both remitter and beneficiary are individuals.

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