Legal Entity Identifier (LEI) Codes: Regulatory Significance and How to Obtain One

The Legal Entity Identifier (LEI) is a unique 20-character alphanumeric code used to identify distinct legal entities across the global financial system. In essence, an LEI acts as an international business ID – akin to a “bar code” – that links to key reference information about an organization, such as its official name, registered address, and ownership.

LEIs can be obtained by organizations of all types (companies, trusts, funds, government agencies, etc.), but not by private individuals.

They were introduced in the wake of the 2007–2008 financial crisis, when regulators found it difficult to track transactions and exposures because no single global identification system for parties existed. This lack had real consequences: when Lehman Brothers failed in 2008, financial firms and regulators struggled to assess their total exposures, since there was no standardized way to identify all of Lehman’s counterparties across disparate records.

In 2011, the G20 nations endorsed the creation of a global LEI system to increase transparency and help authorities better monitor financial markets. The first LEI codes were issued in 2012, and since then the system has expanded worldwide.

By the end of 2022, over 2.1 million LEIs had been assigned to entities in more than 200 jurisdictions. The LEI data pool is essentially a global directory of businesses, answering the questions of “who is who” and “who owns whom” in financial transactions.

Why LEI Codes Are Important

LEI codes play a vital role in improving transparency and trust in financial markets.

By assigning every legal entity a unique identifier, the LEI system enables regulators and market participants to easily verify the parties involved in transactions and link data across markets.

This unified identification helps prevent fraud and reduce risk by eliminating ambiguity about who is doing what.

• LEIs make it harder for bad actors to hide behind complex corporate structures or multiple jurisdictions.
• The publicly accessible LEI database reveals the identity and ownership of entities, aiding anti-fraud and anti-money laundering efforts.
• Financial institutions and businesses benefit from greater efficiency: internal record-keeping and risk management become easier when the same standardized ID is used globally, reducing errors and duplicate records.

LEIs thus contribute to more accurate risk assessment, as regulators and firms can aggregate exposures by entity and see a complete picture of a company’s activities across the financial system.

Wide adoption of LEIs can even unlock significant cost savings for financial institutions.

Studies indicate that banks could collectively save around $2–4 billion per year by leveraging LEIs to streamline client onboarding and compliance checks (KYC).

Market Integrity and Stability

Furthermore, LEIs support market integrity and stability.

Because each code is backed by verified reference data, supervisors can quickly identify counterparties to any trade and detect interconnections between entities. This aids in monitoring for market abuse or systemic risk.

As one regulator noted, the LEI is “the only data element allowing unique and persistent identification of clients” – a crucial tool for surveillance of trading activity. LEIs also facilitate faster, safer cross-border transactions and data exchange.

By providing a common identifier recognized internationally, they make it easier to link information across databases, aiding small businesses in simplifying credit evaluations and access to finance through more transparent records.

Regulatory Requirements and Compliance

One major driver behind the LEI’s adoption is regulatory mandate.

Around the world, financial regulators have incorporated LEI requirements into many rules and reporting regimes. In fact, over 100 regulations globally now require LEIs for certain transactions or entities.

For example, in the European Union, the Markets in Financial Instruments Directive II (MiFID II) introduced a strict “no LEI, no trade” policy. Since January 2018, any company or fund that wishes to trade stocks, bonds, derivatives, or other securities in EU markets must have an active LEI code.

Without an LEI identifying the issuer, authorities would not know which national regulator is responsible for supervising that instrument. Thus, LEIs enable cross-border regulatory cooperation by clearly pinpointing issuers and ensuring the correct jurisdictional oversight.

How to Obtain an LEI Code

Obtaining an LEI code is a straightforward process that any eligible legal entity can complete. LEIs are not issued automatically; an organization must apply for one through an official LEI issuing body.

The Global LEI System is administered by the Global Legal Entity Identifier Foundation (GLEIF), which accredits a network of Local Operating Units (LOUs) around the world to issue and manage LEI codes.

1. Steps to get an LEI code:
2. Choose an LEI issuer or registration agent: Start by selecting a provider authorized to issue LEIs. I personally use LEI Service.
3. Submit your entity information: Through the provider’s online form, enter your organization’s details.
4. Provide any required documents: You may be asked to upload supporting documentation.
5. Pay the fee: The cost varies depending on the service provider and region.
6. LEI issuance and confirmation: After successful validation, the LOU issues the LEI code.
7. Annual renewal: Remember that an LEI is not a one-time registration – it must be renewed each year to remain active and valid.

Obtaining an LEI is a relatively quick and simple procedure.

The LEI system is designed to be globally interoperable, so no matter which accredited issuer you use, your code will be recognized worldwide.

Conclusion

In summary, the Legal Entity Identifier has become an essential element of the modern financial landscape. An LEI code is a standardized global ID for businesses, created to remedy the fragmentation and opacity that contributed to the last financial crisis.

Regulatory initiatives in the EU, US, and many other jurisdictions have cemented the LEI’s role as a compliance requirement for countless firms.

The message is clear: if your organization is involved in regulated financial activities, obtaining an LEI is not just advisable but often mandatory.

As financial markets continue to digitize and integrate, LEI codes are only growing in importance. They lay the foundation for more transparent, efficient, and secure financial flows, enabling “smarter, less costly and more reliable decisions about who to do business with.”

For any entity operating in financial markets today, understanding and leveraging LEI codes is increasingly essential to navigate the evolving regulatory landscape and to build trust in every transaction.

As financial markets continue to digitize and integrate, LEI codes are only growing in importance. They lay the foundation for more transparent, efficient, and secure financial flows, enabling “smarter, less costly and more reliable decisions about who to do business with,” to quote the Global LEI Foundation’s motto. From improving risk management to reducing compliance burdens, the LEI is a small code with big benefits. In the coming years, we can expect the LEI system to expand further – potentially becoming a key component of the digital economy’s identity infrastructure. For any entity operating in financial markets today, understanding and leveraging LEI codes is increasingly essential to navigate the evolving regulatory landscape and to build trust in every transaction.