The LEI was established under the ISO 17442 standard by the International Organization for Standardization (ISO). It’s used as an identifier mainly for legal entities that are involved in financial activities such as stock, bond, or forex trading.
The main purpose of the LEI is to create a worldwide standard for identifying these entities in financial markets. This helps make financial transactions and the organizations involved in them more transparent and easier to track.
Every LEI code is specific to one legal entity and does not change. This means each company engaged in financial transactions can be uniquely and clearly identified, worldwide.
What information is identifiable with an LEI number?
The information tied to an LEI number is public and available in the form of the GLEIF LEI Index. The index is made available by GLEIF on a continuous basis as a public good, free of charge and under the Open Data License.
The LEI index makes it possible for users to clearly identify legal entities, making the global marketplace more transparent. An LEI number itself doesn’t contain any information but combined with the index it’s possible to know details about a company such as its type of legal entity, its official name, its current status, where it’s registered, its registration number, the legal jurisdiction it falls under and contact details such as its legal and head office addresses. This information is known as Level 1 data and makes it possible to know the identity of the entity.
An LEI number also includes information about the ownership of the entity, which is know as Level 2 data. This data shows who owns the company and whom the company itself owns.
The Global Legal Entity Identifier Foundation (GLEIF) stated goal with an LEI number is to answer two important questions in corporate financial transactions: “Who is who?” and “Who owns whom?” By combining Level 1 data and Level 2 data it is possible to answer these questions in an efficient manner.
How is a LEI number structured?
An LEI number is a uniform code under the ISO 17442 standard, made up of a mix of 20 letters and numbers. Here’s how it’s broken down:
- The first 4 digits indicate the ID of the Local Operating Unit (LOU) that issued the LEI.
- The next 2 digits, numbers 5 and 6, are reserved for future use and are set to ’00’ for now.
- Digits 7 through 18 are unique to each entity, and they can be a combination of letters and numbers. They contain no embedded intelligence.
- Finally, the last 2 digits, numbers 19 and 20, are used for verification purposes.
This structure ensures that each LEI number is unique and accurately represents the entity it’s assigned to.
Who Needs an LEI Number?
A Legal Entity Identifier (LEI) number is needed for entities involved in financial transactions, particularly in buying and selling stocks, bonds, or other securities. The requirement for an LEI number varies between jurisdictions and includes:
- Sole traders acting via a company
- Banks and lenders
- Publicly listed companies
- Investment and insurance companies
- Brokerage firms
In the European Union both investment firms and their clients must have an LEI number under MiFID II and MiFIR regulations. EU authorities strictly enforce this, prohibiting trading between investment firms and clients if either party lacks an LEI.
Sole traders or individuals operating through a company for financial activities like stock trading may also require an LEI, depending on the specific rules of the jurisdiction in which they operate. This requirement is not uniform globally and varies based on local financial regulations.
The requirement for an LEI number extends across various industries, with specific jurisdictions mandating legal entities to have an LEI for easy identification. Read more about LEI in Regulations.
An LEI number is not required nor available for natural persons.
Key takeaways
An LEI, or Legal Entity Identifier, is essentially a unique code assigned to entities participating in financial markets. This code is needed for entities trading stocks, bonds, futures, and forex or as mandated by local jurisdictions.
- The Global Legal Entity Identifier Foundation, GLEIF, is central to the LEI system. GLEIF looks after the systems rules and ensures compliance with its standards.
- LEI numbers are issued by Local Operating Units (LOUs) accredited by GLEIF. These units are responsible for verifying the data and maintaining the accuracy of each LEI.
- In every financial deal, entities use their LEI numbers for identification. This ensures each participant in a transaction is known and traceable.
- Regulators rely on LEI numbers to watch over financial markets. They use them to make sure these markets are transparent and less risky.
- A key rule in financial markets is “No LEI, No Trade.” This underscores the importance of LEI in current financial regulatory practices. Without an LEI, entities cannot participate in trading.
In summary, an LEI number serves a significant role beyond being merely a code. It links various entities such companies, regulatory bodies and financial markets. This connection enhances both the integrity and efficiency of financial transactions on a global scale.
Renewal of an LEI number
LEI numbers require an annual renewal to ensure their validity. For instance, if an LEI was issued on January 1, 2024, it needs to be renewed by January 1, 2025. Failing to renew by this deadline will result in the LEI becoming inactive or “lapsed”. Regular renewal is vital to keep the information in the Global LEI Pool current and accurate.
LOUs like NordLEI facilitate the renewal of LEIs for varying periods, such as 1, 3, or 5 years. Clients typically receive a reminder about a month before their LEI’s expiration date, allowing ample time for renewal. For those opting for multiyear renewals, LOUs like NordLEI ensure that your LEI data is updated in accordance with the latest information from official company registries. This process is key to maintaining the accuracy and reliability of your LEI data.
Who can issue an LEI number?
While the Global Legal Entity Identifier Foundation (GLEIF) oversees the entire LEI system, it does not directly issue LEI numbers. Instead, the actual issuance and management of LEIs are carried out by GLEIF-accredited Local Operating Units (LOUs) such as NordLEI. These LOUs serve as the primary point of contact for legal entities seeking to obtain an LEI number.
Each LOU operates under the standards and guidelines set by GLEIF, ensuring consistency and reliability in the issuance of LEIs. Legal entities looking to acquire an LEI can choose from any of these accredited LOUs, which are listed on the GLEIF website. This approach ensures that the process of obtaining an LEI is accessible, standardized, and maintains a high level of data integrity.
