What is the LEI code? How to get the LEI code? Why do companies need LEI number? We answer these and other questions in this educational article.
AtoZ Markets – If you are familiar with some of the financial world’s acronyms, you will have to learn a whole bunch of new ones. Ahead of the Markets in Financial Instruments Directive II implementation, the EU authorities have released a group of new acronyms for financial market participants to take note of.
One of such – the LEI number. In the past months, industry participants started to often talk about the 'LEI number'. However, what is the LEI code? How to get the LEI code? Why do companies need LEI number? We will answer these and other questions in this article.
What is the LEI number?
The LEI number stands for Legal Entity Identifier. It is the international ISO standard 17442. LEI is a combination of 20 numbers and letters. The number enables consistent and accurate identification of all the legal companies that use financial transactions. This also includes non-financial institutions.
In simple terms, LEI number is a unique identification code for firms which trade in financial markets. Moreover, every company needs to annually renew the LEI number before it gets expired.
As a part of the upcoming unified MIFID II regulations, all legal entities that engage in trading with EU-licensed brokers will need to have their own LEI. The official excerpt from directive states:
“In order to facilitate market surveillance, client identification should be consistent, unique and robust. Transaction reports should, therefore, include the full name and date of birth of clients that are natural persons and should identify clients that are legal entities by their LEIs.“
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How LEI number is structured?
As the LEI number is a combination of 20 numbers and letters. It is structured in the following format.
- Numbers 1-4 shows the ID of the LOU which has issued the LEI number
- Numbers 5-6 always have a value "zero"
- Numbers/Letters 7-18 are random numbers which are unique for every entity.
- Numbers 19-20 are for verification purposes.
Who needs an LEI number?
Every firm that acts as a legal entity will need an LEI number. At present, having an LEI number is obligatory for all banking institutions, insurance companies, forex brokers, investment companies, credit unions and any other firms which are in the financial market.
For example, the US has also had a number of mandates which require LEI number for their legal entities such as the Dodd Frank Act, the OFR, the Federal Reserve (FED) and the Securities & Exchange Commission (SEC).
In conclusion, LEI number are required by any legal firm who is involved with financial transactions or operates within today's global financial economy.
Is LEI number mandatory?
Every country has a different set of rules for LEI number. However, financial institutions which deal with shares, bonds, derivatives, currencies etc in the European region must have an LEI number in order to buy or sell financial instruments.
Why do you need a legal entity identifier?
In case a person is a corporate trader or his/her company is trading with an EU licensed broker, they need to submit the LEI number. The firms need to do so to be properly identified in transactions reports that are further being submitted to the regulator.
How to get the LEI code?
To get an LEI number, you will have to choose one of the international organizations which are authorized to issue LEI codes to legal entities. LEI codes are issued by entities certified by the Global Legal Entity Identifier Foundation (GLEIF). The list of these entities is available on the official website of GLEIF. You can check the link here.
Moreover, the clients are required to get in touch with the authorized organizations and obtain an LEI code.
Additionally, LEI codes are issued for a fee and annual service fee also applies. Therefore, before choosing the issuing organization, you are recommended to check the offers of the third- party LEI issuing organizations.
Which information is included in LEI code reference data?
LEI codes contain the following information about the entity:
- The official name of the legal entity as recorded in the official registers
- The registered address of that legal entity
- The country of formation
- The codes for the representation of names of countries and their subdivisions
- The date of the first LEI assignment; the date of the last update of the LEI information; and the date of expiry, if applicable.
Presently, there are 530,940 LEI numbers issued in the world.