What is the global Legal Entity Identifier (LEI)?
The Legal Entity Identifier (LEI) is a unique identifier, which allows for the identification of legally independent entities across global financial markets. It represents an innovative cross-country, cross-legal system, and cross-market solution.
The creation of the Global LEI System is a direct result of the recent financial crisis and a reaction to the difficulties experienced by banks and regulatory agencies to quickly identify complex corporate relationships as well as links between issuers and securities.
How do markets benefit from the LEI?
With the global establishment of a uniform system for the identification of legal entities, it is expected that costs will be reduced for individual companies as well as the entire market and that the risks management and financial market transparency will be improved.
This can be achieved through error reductions with regard to business transactions and by lowering the costs for data cleaning, maintenance, and reporting to regulatory authorities. In addition, the clear identification of all contracting partners strengthens important business processes and reduces risks for all involved companies.
Who is behind the LEI system and how is it organized?
The Financial Stability Board (FSB), a regulatory committee located in Basel, established the LEI system on behalf of the G20. The objective is to be able to quickly and reliably identify each party involved in a financial transaction (as well as each fund) with the help of a unique identifier. The LEI system is monitored by the Legal Entity Identifier Regulatory Oversight Committee (LEI ROC (www.leiroc.org)), which consists of more than 50 regulatory institutions worldwide and a variety of public sector stakeholders.
With the creation of the Global LEI Foundation (GLEIF (www.gleif.org)) as the administrative center of the Global LEI System (GLEIS) in June 2014, an important step towards the establishment of a system of global entity identification was taken. The GLEIF governs the global implementation of the worldwide uniform GLEIS standards. Various different Local Operation Units (LOUs) are responsible for the allocation of LEIs. They contribute their expertise with regard to local structures and jurisdictions and assure that the information provided by companies and funds is transferred correctly to the global system.
More information on the structure of the LEI and on relevant organizations can be found on the websites of the FSB (www.financialstabilityboard.org), the LEI (www.leiroc.org), or the GLEIF (www.gleif.org).
What is the area of application of the LEI?
On July 4, 2012, European authorities signed into law Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties, and trade repositories (EMIR). The text is the result of an EU initiative on the regulation of OTC trading with derivative products. At the core of the regulation is the requirement for market participants to clear any derivative contracts through a central counterparty and to report any OTC derivative contracts to a trade repository. As EU regulation, EMIR is directly applicable and does not require any transposition into national law.
The EMIR reporting requirement became effective on February 12, 2014, and applies to all derivative contracts that
a.) were entered into before August 16, 2012, and remain outstanding on that date;
b.) are entered into on or after August 16, 2012.
Additional information on EMIR and the corresponding reporting requirements can be found on the website of the German Federal Financial Supervisory Authority (BaFin) (www.bafin.de).
Details on the extent of the required reporting to the trade repositories can be located in the definition section of the Regulatory Technical Standards (RTS) issued by the European Securities and Markets Authority (ESMA) which were published on September 27, 2012.
In addition to contract-specific data, the parties involved are also required to report basic information. An LEI is needed for proper identification in this context.
Moreover, the LEI is mentioned in further regulations as, for instance, in the Technical Standards pertaining to the AIFMD (Alternative Investment Fund Managers Directive).
Which regulations require the use of an LEI?
For more information see: www.gleif.org/rulemaking