In a world where globalization and digitalization are constantly growing, it is crucial for businesses and investors to navigate complex financial markets with security and precision. Legal Entity Identifier (LEI) codes have become a fundamental part of this navigation. This guide will take you through everything you need to know about LEIs – from their origin and meaning to how to acquire and use them in practice.
In a world where globalization and digitalization are constantly growing, it is crucial for businesses and investors to navigate complex financial markets with security and precision. Legal Entity Identifier (LEI) codes have become a fundamental part of this navigation. This guide will take you through everything you need to know about LEIs – from their origin and meaning to how to acquire and use them in practice.
Introduction to LEI codes
What is an LEI code?
An LEI (Legal Entity Identifier) is a unique 20-digit alphanumeric code used to identify legal entities involved in financial transactions. This global standard was introduced to create greater transparency and security in financial markets by ensuring that each legal entity can be uniquely identified.
Purpose and importance of LEI codes
The purpose of LEIs is to improve transparency in financial markets by providing a unique identification of legal entities. This helps reduce the risk of fraud, improve risk management and ensure compliance with laws and regulations. LEIs play a crucial role in creating a more stable and secure financial system.
How LEI codes work
The structure of an LEI code
An LEI consists of 20 characters divided into three segments: the first four characters identify the local operating entity that issued the code, the next 14 characters are unique to the legal entity, and the last two characters are check digits that ensure the integrity of the code. This structure ensures that each LEI code is unique and can be traced back to the issuing entity.
How LEI codes are assigned and managed
LEIs are granted and managed by Local Operating Units (LOUs) approved by the GLEIF. Companies and investors can apply for an LEI code through an LOU, which checks the information and issues the code. LEI codes must be renewed every year to ensure that the information is up-to-date and correct.
Global Legal Entity Identifier Foundation (GLEIF) and its role
GLEIF is the global organization that oversees and coordinates the LEI system. Its role is to ensure that LEIs are issued and managed in accordance with global standards. GLEIF works closely with LOUs to ensure that the system remains reliable and efficient and that it continues to meet the needs of global financial markets.
How do you obtain an LEI?
To obtain an LEI, a company or investor must apply through an authorized issuer. The application process involves submitting relevant information about the legal entity, which is then verified. Once the information is verified, the LEI code is issued and must be renewed annually to ensure the data remains accurate and up to date.