With each passing year, LEI Legal Entity Identifierjust keeps on getting more and more attention.
The fact you are seeking to know more about legal entity identifiers is a testament to this fact. The fact we now have thousands of LEI issued every year is another brilliant fact that supports that claim.
On the flip side, though, more awareness of legal entity identifiers also means increased demand for LEI-related information.
Thankfully, blogs like these are committed to providing this sort of information.
If you’re here to learn a thing or two about legal entity identifiers, I want you to relax because you’ve come to the right place. Admittedly, we may not be able to answer all the questions in your heart, but we promise to touch on the important ones.
So, let’s go, shall we?
What really is a legal entity identifier LEI?
A legal entity identifier is a unified global reference number used in identifying legal entities involved directly or indirectly in financial transactions.
Based on that definition, we can make the following deductions about the overall concept of legal entity identifiers:
- That LEI is like a global barcode for businesses and agencies
- That LEI may be required for entities involved with monetary transactions
- That LEI can be used to validate or verify the identities of businesses and agencies
Who needs an LEI registration?
In the beginning, people assumed legal entity identifiers were only meant for big bodies like banks, credit unions, government agencies, and so on.
But that’s not the case. The concept of LEI registration stretches beyond traditional financial homes only. Below is an extensive description of the kinds of entities that need an LEI registration.
- Bodies that issue equity, debt, or other securities.
Who falls in this category? Angel Investors, Moneylenders, Mortgage facilitators, broker or brokerage firms, and so on.
- Bodies listed on an Exchange.
Who falls in this category? Businesses listed on trading marketplaces. i.e., businesses with stock values.
- Market Traders
Who falls in this category? Bodies that participate in trading stocks, bonds, mutual funds, forex, cryptocurrencies, etc.
- International business traders/suppliers
Who falls in this category? Corporate bodies (e.g., suppliers) servicing international customers.
What does an LEI look like?
As with every registration code, a legal entity identifier number is a collection of symbols and letters formatted as a 20-character, alphanumeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO).
As you’ll soon see, the 20-character alphanumeric code of an LEI can be split into three segments, with each segment standing for something completely different.
- Characters 1-4: Local Operating Unit (LOU) identifier
- Characters 5-18: identification of the legal entity
- Characters 19-20: verification of the identity of the legal entity
The first segment points to the LOU (More on this soon) that issued the number. The second segment is the unique identification of the entity in question, while the last segment is the means to verifying an entity’s identity.
The subject of ‘who is who’ and ‘who owns whom’
One of the fundamental reasons for creating LEIs in the first place is to answer the question of ‘who is who’ and ‘who owns whom’ in the Global Financial System (GFS).
The idea was to establish a system of codes that can be used to verify legal entities anywhere in the world. Just by looking up a business number on an accredited platform, one should be able to tell what the business is about, what other businesses that business owns, and who the overall owners are. This is essential information needed to facilitate financial transactions, especially when it’s happening over the internet.
How does an LEI answers the question of ‘who owns who’ and ‘who owns what’
It does through its inherent system of code.
Generally speaking, a typical LEI number can be split into two levels in terms of data relevance. These are:
- The Level 1 Data: This data provides relevant information about the legal entity, including their legal name, registration number, legal address, etc.
As you can imagine, this level of data is where you’ll find answers to the question of ‘who is who.’
- The Level 2 Data: This data provides information about the entity’s ownership and ownership structure. That is, who are the business owners and how is the business owned/structured.
Here is where you’ll find answers to the question of ‘who owns whom.’
Is it compulsory for a legal entity to apply for an ELI Number?
Once you’re considered a legal entity – whether by law or by your own discretion – it becomes imperative to apply for LEI Number.
LEI code sets your business apart from the rest of the competition, especially if you’re in an industry where the concept of LEI application is yet to be adopted by everyone.
What do I gain from getting for LEI?
Of course, everybody wants to know what they will benefit from participating in an action. Well, in this case, there’s so much to gain from owning an LEI number.
- You suddenly become qualified to participate in certain transactions
Without an LEI registration, you may not be able to do business (especially financial transactions) on certain levels in some countries. However, doors suddenly open for you with a legal entity identifier code.
- Business verification becomes smooth and seamless across all levels
Whether at ports, in-land, overseas, online, or anywhere, an LEI registration number makes it extremely easy to verify your business. Think of it as a barcode, anyone who wants to verify your business legitimacy simply has to run your LEI code through the system.
Saves you from having to submit tons of documents every time you’re asked to verify your business.
- You join the league of the elites
A legal entity identifier is a directive from G20. That tells you the kind of power at play and the category of businesses involved. Talk about Google, Amazon, Walmart, and all of those.
When you apply for an LEI registration, you automatically become a part of this elite class.
- Access to international loans and investors
If you run a type of business that could use international investments of any kind, getting a legal entity identifier is an absolute no-brainer.
The significance of legal entity identifiers on the global scale is so huge that it’s sometimes the major information requested before applying for loans, grants, investments, etc.
- Transparency and acceptance
If your business deals in international transactions, you really cannot do without getting an LEI registration. This is particularly true for B2B businesses.
Doing business with international companies requires a different level of legitimacy proof. In most cases, you’ll be asked to prove that you’re real before anyone can agree to do business with you. The best way to do this is to confirm your LEI status.
The LEI registration system is an impartial setup that’s trusted internationally. If you’re able to showcase that you’re in the system, everyone will trust you.
How does an LEI work? What are the steps involved
The mode of operation of LEI can be defined as follows:
- Obtaining the LEI code
- Updating or renewing the LEI code (for updates when necessary)
- Third-parties verifying the LEI whenever needed on the GLEIF site
- Using the LEI to unlock certain doors (submitting to investors or using to apply for international loans)
- Transferring an LEI code whenever you need to.
- Obtaining the LEI code
The first step of the process is obtaining the code. You can do that by completing an LEI application form online. Usually, LEI registrations are done via the websites of accredited LEI agents.
In case you’re wondering, LEI accredited agents are regular businesses licensed to promote, manage, and complete LEI registrations for clients.
When you apply for LEI, the agent forwards your details to the Local Operating Unit (LOU) working in that jurisdiction. The LOU then vets your details against local registries to affirm that you’re who you claim to be.
What are the documents/details you need for completing an LEI application?
Legal business/entity name
Name business is registered as
Business registration number (e.g., RC Number).
Business address
Applicant’s full name
Applicant’s email address (this is what the LOU will use in communicating to you)
Applicant’s phone number
Applicant’s position/title in the organization
In the instance where the LOU can’t verify some of the information you provide, they may ask you to provide credible supporting documents.
It should be noted that it is not a must to use an LEI issuer working in the same jurisdiction as you. The GLEIF has made the process so seamless that you can be in Kenya and get your LEI issued by an agent working with an LOU in Paris.
Basically, LEI registrations aren’t limited by location. You’re free to choose a registered agent from anywhere in the world.
Finally, you can expect your LEI confirmation email within one business day once your application is completed. However, if you apply over the weekend, it may take longer.
- Updating or renewing the LEI code (updates when necessary)
Having completed your application and obtained your LEI, you’re free to enjoy your LEI status for one full year. Only after one year will you be required to renew your status.
Usually, there are two ways to renew an LEI registration status. You can do it yourself by following the same steps as before – hiring a registration agent, providing your details, and all of that.
However, if you’d like to save yourself the stress, you can simply opt for auto-renewals. You get auto renewals when you buy a multi-year LEI registration status – say five years. In this case, the agent automatically renews your status at the end of every fiscal year.
Meanwhile, in the instance when you make changes in your business, you’re obliged to inform the LEI agent so that they can update your LEI status appropriately. For example, say you changed address, got a new shareholder on board, or attached a new product to your company name.
- Third-parties verifying the LEI whenever needed on the GLEIF site
With a live and active LEI status, anybody can look up your business name on the GLEIF website to ascertain your business credibility.
The GLEIF website has an online checker feature that allows people to search for businesses using the business names or a mix of on-page variables.
When someone searches for your entity on this platform, they will find everything they need to know about your brand. Be it the official business name and address, contact details, products owned by the same brand, etc.
Also, if your LEI status is lapsed or active, everyone will see it on this page. A lapsed LEI is when your LEI registration has expired, and you’ve failed to renew.
- Using the LEI to unlock certain doors
Once your LEI is issued, you can use it to apply for loans, grants, or seek foreign investments.
Naturally, LEI isn’t what bags your funds, but it helps to prove your legitimacy when you’re pitching to potential lenders/investors overseas.
Understandably, foreign investors and lending institutions are usually skeptical about supporting businesses outside their countries. Many of them perceive overseas businesses as high-risk entities. This is why, many a time, you will find that you can’t even access loan packages from outside your country.
Your LEI number can change the narrative for you today.
- Transferring an LEI code whenever you need to
Getting an LEI code issued by an LOU is not the end of the road. Sometimes, you may want to transfer your code from one LOU to another.
This is called LEI code transfer. For example, you could transfer an LEI code operated with a Miami LOU agent to another agent based in Texas.
How much does it cost to get an LEI?
Depending on the agent you choose, the price of LEI registration can run from as low as $70 to above $100. This typically caters to the cost of annual registration, status maintenance, and automatic renewal notifications.
If you buy a multi-year package, say a three-year LEI plan, you can enjoy a significant discount.
HOW LONG DOES IT TAKE TO GET AN LEI?
As earlier stated, it takes 24 hours to get an LEI code issued. Usually, over the weekend, things may take a little while.
However, getting your LEI can be instant if you’re from countries like the UK, Netherlands, Luxembourg, Germany, Australia, Singapore, and Denmark.
How will I know when my LEI Number is due for renewal?
If you obtain your LEI code from a reliable issuer, you should be notified when your LEI is due for renewal. Usually, the notification comes a month ahead of the annual renewal.
However, if you’ve subscribed for auto-renewal or a multi-year package, the agent will handle the renewal for you.
What happens if I don’t renew my LEI number?
There’s an ongoing ‘No Trade’ ruling intended to ensure people follow the LEI initiative. If your LEI status runs out and you fail to renew, you may have trouble carrying out certain financial trading.
For example, banks and investment companies are required by law in certain countries to have LEI codes for their clients before facilitating transactions. If you’re a client of one of these banks and don’t have a valid LEI status, your institution may face penalties.
How to obtain your LEI certificate
Once your legal entity identifier number is issued, you become eligible to earn an LEI certificate. However, not all issuing agents issue this kind of certificate. The reason is that LEI certificates differ from LEI numbers.
If you need an LEI certificate, you will have to request one from your issuing agent.