LEI or Legal Entity Identifier is a unique code through which legal entities are identified. It is a code that consists of 20 alphanumeric characters. Each registered entity has a unique code which gives them a unique identification. The LEI number terms means the following:
The first four numbers in the LEI code represent LOU id. LOU stands for Local Operating Units who are responsible for issuing LEI code. They are also known as LEI issuing organizations.
The fourth and fifth numbers in the LEI code are always zero.
The numbers from seven to eighteen are the unique identification code of the entity.
The last two remaining numbers, nineteenth and twentieth numbers are for verification.
LEI is very useful in the modern financial ecosystem. The financial crisis of 2008 called for enhancing the stability of the financial market. At the G20 Summit of June 2011, the issue was addressed and in 2012, the concept of LEI was introduced.
LEI references to two key information related to a legal entity. A legal entity is any entity that is involved in financial transactions. It can be a charity or the government. The two information related to entities are who the entity is and who owns the entity.
The absence of a standard identification system prior to 2012 was a grave issue. The modern economy is powered by many entities and to keep tabs on them was very difficult before. This gave rise to much confusion as many entities had sister entities and parent entities, nobody knew who is who and who owns whom. This in turn led to many frauds inside the system that crippled it and became one of the prime reasons for the stock market crash of 2008. The whole mess was unrecognizable. Who did what?
So the use of LEI is to curb this issue and in identifying who is who and who owns whom. This improves transparency in transactions as there is a digital database of legal entities. Transparency leads to stability as it improves the chances of assessing risk involved and also identifying debts and other negative indicators of the entities involved.
LEI codes are needed by those who are involved in financial transactions at global level. The transactions are between entities, and it is important to identify them.
If you want to apply for obtaining a LEI number you can do it in several ways.
One is to get yourself LEI from LEI issuing organizations or local operating units. You can also take the assistance of registration agents who can help you connect with LOUs or make it accessible to you. Or you can also approach LEI service providers such as LEI Service who can make the whole process of application easy for. LEI Service will take the matter into their hands and ensure all the necessary steps. The only obligation from your side would be the verification of the details of your entity. Visit their website and know more about their services. Do keep in mind that LEI codes are renewed annually.