The importance of an LEI is to define a legal entity (such as a company, organization, business, government agency, trust, fund, etc.) on a global scale and identify the parties to the transaction within the financial systems. Once issued, the legal entity number can be used to represent the legal entity in financial transactions or use cases that require verified organizational identities. One of the main problems with existing legal entity identifiers is that they only identify the entity in question. It can be quite difficult to verify the information about the property. GLEIF promotes ownership transparency by distinguishing between purely biographical data (Level 1 data) and ownership data (Level 2 data). Being an accredited issuer of legal identity identifiers is at the heart of Ubisecure`s mission. We focus on developing services to automate interactions and insurance within the three areas of identity: individuals, organizations and objects. When Lehman Brothers collapsed in September 2008, regulators and private sector companies were unable to quickly and fully assess the extent to which market participants were exposed to Lehman and how the vast network of market participants was interconnected. The financial crisis has highlighted the need for a global system for identifying financial linkages so that regulators and private sector companies can better understand the true nature of risk exposure across the financial system.
This content is provided for informational purposes only and should not be relied upon or used as legal advice. In November 2011, at the G20 Summit in Cannes, the G20 mandated the FSB to implement a global legal entity identifier (LEI) system to uniquely identify parties to financial transactions. The 2008 financial crisis gave impetus to the development of this global LEI system and highlighted the need for a uniform legal code that would allow counterparties and regulators to analyse the monetary risk and risk profile of counterparties. In the United States, Dodd-Frank ordered initiatives to create standard LEIs. That is, most legal entities (investment lawyers, bankers and accountants) use the TIN to refer to the tax identification of a natural person. For most U.S. citizens, their TIN is their Social Security Number (SSN). The implication for sole proprietors is that their SSN is their TIN.
Legal entity identifiers are an integral part of entity management. Until there is a unique entity identifier, U.S. companies must track the EIN, state registration number, D-U-N-S number, and possibly the LEI number of each company in the business family. By identifying the exact legal entity on both sides of a transaction, the LEI helps financial companies and their regulators and policymakers track risks and connections across the financial system. With LEIs, financial firms can become more efficient in internal reporting, risk management, and data collection and maintenance. It also reduces the regulatory reporting burden by reducing the overlap and duplication associated with the use of multiple identifiers. Because the LEI contains valuable, accurate, and transparent identity data attributes, it enables a high level of trust in an organization`s legitimacy and identity. More and more data providers and credit verification organizations are using legal entity identifiers in know-your-customer (KYC) and customer onboarding processes. In response, the LEI system was developed by the G20 2011 in response to the inability of financial institutions to clearly identify organizations so that their financial transactions can be fully tracked in different national jurisdictions.  Currently, the Legal Entity Identifier Regulatory Oversight Committee (LEI ROC), a coalition of financial regulators and central banks from around the world, is promoting the expansion of the LEI. The United States and European countries require companies to use the legal entity identifier when reporting details of OTC derivatives transactions to financial authorities.
[Citation needed] Today, authorities in 45 jurisdictions require the use of the LEI code to identify legal entities involved in various financial transactions. [Citation needed] More than 1.8 million organizations, trusts and funds now have LEI codes (more detailed data can be found in the full LEI statistics). It is firmly established as the global code for identifying “who is who” and “who belongs to whom”. Oversight of the governance principles of the global LEI is provided by a FSB-sanctioned Regulatory Oversight Committee (ROC), composed of more than 70 agencies from more than 40 countries, including international regulators such as the International Organization of Securities Commissions (IOSCO), the FSB and the International Monetary Fund (IMF). The issuance of LEIs is overseen by the Global Legal Entity Identifier Foundation (GLEIF), which is authorized by the FSB and headquartered in Zurich, Switzerland. GLEIF is a non-profit organization overseen by the ROC to act as the operational arm of the Global LEI System and establishes rules and standards that each authorized entity (known as a Local Business Unit or LOU) must follow when issuing an LEI. There are currently 34 operational LUs – all competing with each other. As of March 2020, more than 1.5 million LEIs had been issued in 195 countries. Some of the largest multinational banks have thousands of legal entities, many with similar names, operating around the world. With the expansion of the global LEI system, it is intended to help regulators and market participants understand and document these complex business structures and hierarchies.
GLEIF attempts to address these issues by assigning a new LEI code to each entity. Attempts are also being made to cover parent companies and subsidiaries. .