Updated on: Oct 12th, 2021
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7 min read
In the present era of corporates, credit to the advancement in technology, transactions between businesses take place at exorbitant levels and involve significantly massive amounts. As a result, businesses and financial institutions are exposed to substantial amounts of risk. The worldwide financial crisis of 2007-08 gave rise to the need for transparency in financial transactions. The fact that a significant number of corporations engaged in window dressing and the further concealment of debt that the company had previously held in order to raise more funds and attract investors indeed resulted in a catastrophe. These events are what eventually led to the need for the establishment of a system such as the Legal Entity Identifier system.
The Legal Entity Identifier is a unique 20 character long alphanumeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). With the help of the LEI, essential information regarding the parties to a financial transaction can be easily referenced. It acts as a global directory that provides the much-needed transparency for the benefit of all involved, providing details of the ownership structure and associated details of the parties involved.
The LEI code is not one that possesses any embedded intelligence or country codes that would give rise to confusion and complexity of the users. It is based on four simple principles:- 1. It is a global standard. 2. Every legal entity is assigned a single unique identifier.. 3. It is available publicly, free to all users. 4. A high level of data quality supports it. The LEI code comprises of 20 characters and the following structure:- – Characters 1-4 are unique to each LOU (Local Operating Unit) and are affixed by the ROC Secretariat. – Characters 5-6 are reserved characters (00). – Characters 7-18 comprise a 12 character reference that is assigned by the LOU to a particular entity based on transparent and sound allocation policies. – Characters 19-20 are two check digits under ISO 17442.
The LEI code can be obtained by following the steps mentioned below:-
An LEI Code is generally valid for one year. In order to continue to use the code, it must be renewed through an application form. This can be found on the same online portal; the only difference this time around is to select the option “Modify and Renewal” and not the “Register” option. Again, any changes to this part will also need the authorised person to do so. In the form, once the LEI Code is entered in, all the details appear automatically. Any modifications to be made shall be made. The “LEI Renewal” checkbox has to be checked right and then the same process of form completion, payment and document submission is followed. On successful submission of all the above, the LEI Code is renewed, and the confirmation of the same is received.
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Advancements in technology have led to increased financial transactions between businesses globally, resulting in the need for transparency. The Legal Entity Identifier (LEI) system provides a unique code for parties in financial transactions, ensuring transparency and data quality. Obtaining an LEI involves following specific steps and renewing it annually to continue its use.