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What Is LEI (Legal Entity Identifier) Code?

LEIs are used in the financial markets to identify and manage entities. LEI assigns a unique identification code to each legal entity and links this code to the data of that entity stored in other databases.

Kaleem Kirkpatrick
May 26, 20231292 Shares58717 Views

Why Is It Required?

LEIs are used in the financial markets to identify and manage entities. LEI assigns a unique identification code to each legal entity and links this code to the data of that entity stored in other databases. The LEI number searchsystem provides reliable and accurate identity verification, facilitates global risk management and reporting, and enhances transparency.

Why is LEI code required?

It serves as a unique identifier for financial entities-

LEI is a unique identifier used as a reference in other systems, such as legal and financial transaction systems. It helps to identify the parties involved in transactions.

It provides a much faster and more accurate "single point of reference" for trade transactions

LEI is used to determine the identity of both financial entities - buyers and sellers involved in transactions from both sides. It makes it easier for financial institutions to confirm their counterparties' identities through their respective LEIs, thus reducing the time for matching with the counterparties, especially during unusual market volatility.

It provides the confidentiality of information

LEI allows financial entities to perform electronic transactions in a secure environment. Additionally, it prevents the information about one party from being taken out of another party's LEI when this latter party engages in transactions.

It enhances transparency and accountability

LEI provides a centralized way to monitor the activity of financial entities and ensure that they operate within their mandate or regulatory framework.

It makes it easier for regulated markets to audit third-party activities

LEI's transparency helps regulated markets monitor and control third-party activities. It includes monitoring market participants' activities, such as counterparties, trading platforms, agents, etc.

It improves the efficiency of financial transaction processes

LEIprovides a means of identifying financial entities. It facilitates the efficient matching of counterparties, making transactions more efficient and ensuring that transactions are concluded with their intended and intended counterparties.

It enhances access to markets and the introduction of new financial products

Introducing new financial products requires more time and effort if LEI codes need to be correctly assigned to the counterparties involved in this process. Failure to produce an appropriate LEI code would delay the launch of new products, thus preventing market participants from accessing markets efficiently. It also increases transaction costs for market participants involving new products.

It ensures the more efficient use of financial markets

The LEI number search facilitates access to information from other financial markets, particularly the foreign exchange and bond markets. For example, a financial entity that has obtained an LEI code for one particular currency would have access to financial and economic information about this currency, including its exchange rates.

It supports efficient regulatory reporting by market participants

Financial entities require an integrated and consistent identification system when reporting information to regulators. It would allow them to report their activities effectively, thus reducing the burden on regulators. The identification system also provides information on non-compliant activities of regulated market participants so that relevant authorities can report them.

Conclusion

LEI is an essential element for the efficient operation of the financial market. It allows for the efficient matching of counterparties, thus making transactions more efficient and reducing transaction costs.
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