History of the LEI: Following the 2008 market crash, issue with transparency in the markets caused a litany of issues with regard to identifying counter parties in transactions. When the stock market crashed, thousands of funds and trusts were unidentifiable and the fall resulted in mass confusion. The lack of transparency put financial institutions and banks in a vulnerable position. This was addressed at the G20 Summit of June 2011, who created the concept of the LEI. The idea was to create a digital database, of all legal entities which was easily accessible, reliable and up to date. LEI Codes are simply used to identify legal entities on a global scale. This allows for great transparency in financial markets, standardization, and greater risk control. According to LEI ROC, the LEI number was conceived to be used by the private sector to support improved risk management, increased operational efficiency, more accurate calculation of exposures, and other needs. One centralized source of information that contains vast amounts of attainable, high quality data.
A Legal Entity Identifier (LEI) is a code that is unique to a legal entity such as a Limited Company, Fund or trust or any organization. The LEI code consists of a combination of 20 letters and numbers. This code allows each entity to be identified on a global database of entities searchable by number instead of by name, as many entities may have similar or the same name. The LEI is an ISO standard, which is now a legal requirement for many companies within the global financial system.
The LEI is a way of identifying market participants on a single, standardized database. This offers accurate data about a company which is accessible and completely free of charge to use.
A companies LEI record will contain public data such as their name, address, where they are registered, and whether they are a branch, or owned by another 'parent' company. Till date, there have been over 1.8 million LEIs created globally, and it is quickly being adopted as a global standard in business transactions.
Previously, it was very difficult to find out about the counterparty if they had no digital presence. This became problematic in the global financial crisis a decade ago. The lack of transparency put financial institutions in a vulnerable position as vast numbers of entities and funds were unidentifiable. Also, this created complications relating to risk assessment and transparency. The G20 (Group of 20) launched the LEI system in 2011 in order to ensure this would not happen again. The idea was to create a digital database, of all legal entities which was easily accessible, accurate and up to date. One centralized source of information that contains vast amounts of attainable, high quality data. You can access this freely accessible database by using the LEI Search Tool.
After the G20 formed the concept of the Legal Entity Identifier (LEI) Code, the Financial Stability Board (FSB) appointed a new overseeing body to implement it. This organization is known as the Global Legal Entity Identifier Foundation (GLEIF). GLEIF were given the role of accrediting and monitoring financial institutions with the ability to issue Legal Entity Identifiers. These institutions, known as Local Operating Units (LOUs) and are the only institutions with the ability to issue LEIs. LOUs may issue LEIs themselves or partner with various Registration Agents such as LEI Worldwide who help facilitate mass adoption to the LEI by providing channels through which legal entities can easily obtain an LEI code. This makes the LEI very easy to obtain, and promotes healthy competition between service providers.