In the era of globalized financial world, when you enter into a transaction with any foreign company it becomes very difficult to ascertain the fiscal liabilities and obligations of that party registered in some other country. You may not be aware of potential payouts, investments, debt or financial solvency of the foreign company. This is the problem that the Legal Entity Identifier, abbreviated as LEI, aims to solve.
LEI is a unique 20 digit code that is assigned to a legal entity. It is a global reference data system that uniquely identifies every legal entity, in any jurisdiction, that is party to a financial transaction. The global LEI system has been set up by regulatory authorities to address the financial crisis.
The Legal Entity Identifier (LEI) system was initiated as a response to the financial crisis and is aimed at improving transparency in financial data systems. However, the Global LEI System (GLEIS), was introduced to ensure that there is just one standard system. There are numerous regulations among jurisdictions that require the use of LEI’s. However, the main idea of Global Legal Entity Identifier is to simplify, standardise and provide the ease of identification of any legal entity worldwide.
For the organisation, LEI will (a) serve as a proof of identity for a financial entity; (b) help to abide with the regulatory requirements; and (c) facilitate transaction reporting to Trade Repositories.
What is the structure of LEI? LEI is a 20 digit code created in accordance to the ISO 17442:2012 standard and has the following structure:
Who needs to register under LEI?
a. Over the Counter (OTC) Derivative Markets:
All participants (other than individuals) in the OTC derivative market for Rupee Interest Rate derivative, Foreign Currency derivative and Credit derivative in India are required to register under LEI, in phase manner (provided below).
b. Participants in non-derivative market (other than individuals):
i. Government Securities Market + Money Market:
Markets for any instrument with a maturity of one year or less.
i. Forex Market:
Transaction that settle on or before the spot date.
c. Large corporate borrowers of the bank:
Corporate borrowers with fund based and non- fund based exposure are required to obtain registration under LEI and capture the same in the Central Repository of Information on Large Credits (CRILC).
What are the timelines for registration under LEI?
a. OTC Derivative Market:
Amendment: IRDAI has mandated implementation of the LEI system for all the insurers and their corporate borrowers. Entities without an LEI code will not be granted renewal/enhancement of credit facilities after: (A) In case of insurers on or before 31st July, 2020 and (B) In case of corporate borrowers of the insurers, on or before 30th June, 2020 (vide notification by IRDAI dated 05th June, 2020)
b. Non- Derivative Market:
c. Large Corporate Borrowings:
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