All You Need to Know About LEI (Legal Entity Identifier)
All You Need to Know About LEI (Legal Entity Identifier)
An LEI or Legal Entity Identifier is a unique alpha-numeric code, consisting of 20 symbols, based on the ISO 17442 standard developed by the International Organization for Standardization (ISO), that allows for identification within the global financial system.
What is the LEI structure?
The LEI is a 20-character alphanumeric code and has the following structure:
- Characters 1-4: Prefix used to ensure the uniqueness among codes from LEI issuers (Local Operating Units or LOUs).
- Characters 5-18: Entity-specific part of the code generated and assigned by LOUs according to transparent, sound and robust allocation policies. As required by ISO 17442, it contains no embedded intelligence.
- Characters 19-20: Two check digits as described in the ISO 17442 standard.
Every eligible legal entity will be assigned unique LEI for use globally. The LEI itself will contain no embedded intelligence
To whom is LEI issued ?
A legal entity registered in India can apply for LEI as per their requirement. The list of entities eligible to apply for LEI codes are but not limited to
- Sole Proprietorships,
- Limited Liability Partnerships,
- Partnership Firms,
- Trusts,
- Private Limited Companies,
- Public Limited Companies,
- Government Companies,
- One Person Company,
- Insurance Companies,
- Housing Finance Companies,
- Non-Banking Finance Companies,
- Nonprofit companies,
- Special Purpose Vehicles – ARC Trusts,
- Special Purpose Vehicles – Companies,
- SPV – Partnership Firms,
- SPV – Co-operative Societies or Multistate Co-operative Societies Mutual Fund,
- Mutual Funds-Sub Scheme,
- Pension Fund, pension Fund Sub-Scheme,
- Alternative Investment Fund (AIF), AIF- Sub Scheme,
- Nationalized Banks, Scheduled Urban Cooperative Bank, RRBs, Payment Banks, Banking Companies
- Others, Stand Alone Primary Dealers, Public Financial Institutions, Unlimited Companies, Cooperative Societies or Multistate Cooperative Societies, Government Organizations, Companies Limited by Guarantee, Provident/Superannuation/Gratuity/Insurance Fund, HUF, etc.
- Other entities as may be specified from time to time.
What is the purpose of LEI?
The Global LEI system (GLEIS) has been set up by regulatory authorities [including G20 and the Financial Stability Board (FSB) to address the global financial crisis. The LEI is designed to enable the identification and linking of parties to financial transactions to manage counterparty risk. Its goal is to help improve the measuring and monitoring of systemic risk and support more cost-effective compliance with regulatory reporting requirements.
Why do you need an LEI code?
The RBI has mandated the use of LEIs by large corporate borrowers and legal entities operating within certain financial markets.
Companies that operate within jurisdictions that mandate the use of LEIs will need to obtain one before they are allowed to transact on the financial market within that jurisdiction.
Who is obliged to request an LEI code?
LEI codes are mandatory for all legal entities who trade in securities. The Reserve Bank of India has mandated the use of LEIs by all companies trading in OTC markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India.
RBI Circular for Large borrowers
Borrowings: RBI has mandated LEI number for corporate borrowers having aggregate fund-based and non-fund based credit exposure of ₹ 5 crore and above from any bank to obtain Legal Entity Identifier (LEI) registration.
What is included in Credit Exposure with respect to borrowings?
For Large Borrowings Mandate: The credit exposure comprises of all types of fund and non-fund based limits with all banks which includes:
- a) loans
- b) cash credit facility
- c) Bank Guarantee
- d) letter of credit
- e) Commercial Paper/Corporate Bonds outstanding
- f) forex/derivatives exposure limits
Exposure includes:
- Credit exposure (fund based and non-fund based credit limit)
- Investment exposure (including underwriting and similar commitments)
iii. The sanctioned limits, or outstanding, whichever is higher, shall be reckoned for arriving at the exposure limit.
RBI Circular for NEFT/RTGS Transactions
RBI Mandate states that LEI Number is required to any single transaction done through RTGS/NEFT of value 50 crores or above during the year.
In case you are using RTGS/NEFT for carrying out transactions of value 50 crores or above for FX Payments, Money Market Payments, Vendor Payments, Inter-company payments or any other, LEI number would be required.
RBI Circular for Cross-border Transactions
AD Category I banks, with effect from October 1, 2022, shall obtain the LEI number from the resident entities (non-individuals) undertaking capital or current account transactions of ₹50 crore and above (per transaction) under FEMA, 1999. As regards non-resident counterparts/ overseas entities, in case of non-availability of LEI information, AD Category I banks may process the transactions to avoid disruptions.
IRDAI Circular for Insurers and corporate borrowers
The IRDAI circular is applicable to both term loan borrowers and debenture issuers. Debentures, term loans as well as Bonds both would be included in computing the overall exposure that an insurer or financial institution has to a corporate borrowers either in the form of term loan or debentures or in any other form of debt.
SEBI Circular for Non-convertible securities, securitized debt instruments and security receipts
The SEBI circular requires “Debenture trustees” and “Asset reconstruction companies (ARCs)” to obtain LEI Number by September 01, 2023. The circular states that LEI number is required to be obtained for issuers who have listed and/ or propose to list non-convertible securities, securitised debt instruments and security receipts.
RBI Circular for OTC derivatives
Over-the-Counter (OTC) Derivatives: Over-the-Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India.
The Reserve Bank of India has mandated the implementation of the LEI system for all participants in the Over-the-Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India, in a phased manner. Entities without an LEI code would not be eligible to participate in the OTC derivative markets, after the date specified in the schedule.
In case you are booking forward contract with bank, then you will be required to obtain LEI code under this circular.
How will LEI help?
LEI will be assigned on application from the legal entity and after due validation of data. For the organization, LEI will
- Serve as a proof of identity for a financial entity
- Help to abide by regulatory requirements
- Facilitate transaction reporting to Trade Repositories
How long is the LEI code valid?
The LEI code is valid for 1 year from the date of issue. The code must then be extended (via a renewal application) for the following year.
What do we do if company data changes in the Ministry of Corporate Affairs?
Throughout the LEI code period, it is important that the company’s data in the GLEIF database matches the data in the Commercial Register.
How long does it take to issue an LEI code?
An LEI number is typically issued within 24 hours. If the legal structure of the company (consolidation group) is complex and additional information is required, it may take longer to issue the number.
Where can I verify the existence or validity of an LEI?
The validity of the LEI code can be verified on the LEI homepage by using the search.
How much does an LEI code cost?
1) Amount for one year
– 4,130/- (3500/- plus GST @ 18%) for New Applications
– 3,304/- (2800/- plus GST @ 18%) for Renewal Applications
2) Fee structure including 1st year issuance
3) Fee structure for renewals only
How do you pay for an LEI code?
The payment can be made by way of NEFT/Internet Banking/Credit Card/Debit Card/ Demand Draft payable at Mumbai. The authorized user will receive email with respect to payment of fees.
Conclusion
In summary, the Legal Entity Identifier (LEI) is a powerful tool that enhances transparency and efficiency in the global financial system. It provides a standardized method for identifying legal entities engaged in financial transactions, thereby reducing risks and improving regulatory compliance. The widespread adoption of LEIs facilitates better risk management, aids in the prevention of financial fraud, and promotes overall market integrity.
As businesses and financial institutions continue to operate in an increasingly interconnected world, the importance of LEIs will only grow. Ensuring that your organization is equipped with a valid LEI not only fulfills regulatory requirements but also positions you as a responsible and transparent participant in the global financial landscape.
