The Legal Entity Identifier (LEI) is just a 20 characters long alpha-numeric code that is used to identify parties in financial transactions all over the world. It was put in place to increase the accuracy and quality of financial information reporting systems so that risk could be effectively managed. It’s used to construct a global reference information system which uniquely identifies each legal entity involved in a financial transaction, regardless of country. It can be obtained from any of the Local Operating Units (LOUs) recognised by the Global Legal Entity Identifier Foundation (GLEIF), the organisation entrusted with promoting LEI adoption and use. LEI can be also obtained in India via Legal Entity Identifier India Ltd. (LEIL), that is also recognised by the Reserve Bank as an LEI issuer.
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Key Facts about Legal Entity Identifier
- For National Electronic Funds Transfer (NEFT) as well as Real Time Gross Settlement (RTGS) payment transactions, it is not mandatory for governments or their departments/ministries to get or mention an LEI number. Corporations and undertakings, even those wholly controlled by the government, will, however, be required to obtain an LEI.
- When both the remitter and the beneficiary are persons, the LEI is not required. However, the LEI will be required for transactions in which one or both the parties are non-individuals.
- The Legal Entity Identifier system introduced in India under the Payment and Settlement Systems Act of 2007.
- The Legal Entity Identifier is valid for a period of one year from the date of its registration.
- The first LEI was issued in the year of 2012.
- It was amidst the financial crisis of 2008, when the international authorities learned that each financial institution did not have a unique code that could be used to identify it in all countries. Every country had its own unique set of identification numbers. This made assessing risk exposures, analysing, and resolving issues throughout the market difficult.
- The Legal Entity Identifier does follow the International Organisation for Standardisation.
- It’s a sequence of alphanumeric characters. The local operating unit is identified by the first four characters. The Local Operating Unit assigns the characters five through eighteen. Checksum digits are the last two characters. The checksum numbers are utilised to identify any problems that may arise during the transaction procedure.
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- All Entities (non-individuals) must include remitter and recipient LEI information in all single payment transactions worth more than ₹50 crore. This is valid for transactions made using the NEFT as well as RTGS payment systems. Both client payments and inter-bank transactions that match the above criteria should contain LEI information in the case of RTGS.
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