LEI (Legal Entity Identifier)

What is Legal Entity Identifier number and how is it used?

A Legal Entity Identifier (LEI) is a unique 20-digit alphanumeric code that can be assigned to any registered Legal Entity in the world. This code increases the transparency in the market, because it helps in easy identification of all the legal entities that can be involved in a financial transaction.

The LEI should not be confused with the registration number / CIN etc. that is allocated by local regulatory bodies in a region, to the legal entities. This 20-digit code follows a fixed universal format and it is recognized all around the world.

A Legal Entity can request this unique ID from a Local Operating Unit (LOU) that is present in the region. Once obtained, the LEI has to be then renewed every year, by paying the applicable fees to the LOU. The implementation of the LEIs is supported by the Global Legal Entity Identifier Foundation. The GLEIF is also responsible for accrediting the LOUs in a region.

Need for LEI code

Let us suppose that Company ZZ is based out of India and it is listed on different stock exchanges:
     On NSE, the shares are listed as: ‘CMPNYZZ’
     At the same time, the shares are listed on BSE as: ‘COMZZ’
     And the company is also listed on NASDAQ as: ‘CYZZ’

In this example, although the name and the stock symbols are different, but they still refer to the Equity of the same entity: Company ZZ. To avoid confusion, a simple solution is to have a unique identification number that can be assigned to Company ZZ and this ID number will be recognized all around the world.

In addition to the unique ID, other information about the entity is stored as well. This information includes: name of the entity, address of the entity, country/region of registration, details of the local body with which the entity is registered etc.

Importance of a unique identifier

This unique ID that is assigned to a Legal Entity can help in the following ways:

  • Easily searching for the Legal Entities in a particular region
  • Helps in regulatory reporting and increasing transparency in the market
  • The ID has a standard format across the globe
  • Checking for forgery, frauds and illegal securities that are being traded
  • Searching for links between different financial entities (Example: group companies, subsidiaries etc.)
  • Building the Unique Transaction Identifier (UTI) for trades of financial securities

Who needs LEI number?

As the name probably suggests, this is a unique identifier for the registered legal entities in any region. Individuals and Natural Persons are not required to possess this ID number. So, any entity like a Company, Limited Liability Partnership (LLP), Real Estate Investment Trust (REIT), Infrastructure Investment Trust (InvIT) etc. can apply for an LEI number.

It is not mandatory for every Legal Entity to obtain this unique identifier. In fact, the requirement for obtaining the LEI will largely depend on the region in which the Legal Entity is operating. This means that in some countries, it might be mandatory for the entities operating in the financial markets to have this ID number. Whereas it could be optional in other regions.

Irrespective of the country level requirements, some regulatory bodies might make it mandatory for companies in a particular sector to acquire this unique ID. For example, the Central Bank might ask all the commercial banks in a country to obtain an LE Identifier.

Level 2 data in LEI

When issuing the ID number, an LOU will also capture and store information about the Legal Entity. The basic information about the company is called as the Level-1 data. This includes information like: name, address, country etc.

On the other hand, the Level-2 data will include details about the direct parent and the ultimate parent of the Legal Entity. In addition, it will also contain the information about the child entities that are owned by the Legal Entity.

Collection of this data about all the entities can help in easily investigating the complex corporate structures of the organizations. In addition, it can make it easier to identify the Last Natural Person (LNP) and the ultimate beneficiaries of a group of companies. So, the basic idea behind Level-2 data is to answer the question: ‘Who owns Whom?’

Structure and format

As mentioned before, the Legal Entity Identifier code is made up of a 20-digit alphanumeric number. This means that it can contain both alphabets and numbers. The basic format of this ID number will remain same across the world and the structure will look something like this:

  • The first 4 digits represent the code of the Local Operating Unit (LOU), that is responsible for issuing the Legal Entity Identifiers in a particular region.
    Example: For the LOU: Legal Entity Identifier India Limited, the code is ‘3358’.
  • The 5th and 6th digits are reserve digits and they are usually set as ’00’.
  • The next 12 digits are alphanumeric and these represent the unique code which is generated for each Legal Entity.
  • The last 2 digits are the ‘Check digits’. These are used to verify the accuracy of the previous 18 digits.
LEI - Legal Entity Identifier structure and format

Search LEI number

The Local Operating Unit (LOU) in the country / region is responsible for issuing the LEI codes to all the entities that are operating in that region. So, the most reliable way to find the Legal Entity code would be to search on the website of the LOU in that region.

Example: For the entities that are registered in India, the easiest way to check the Legal Entity Identifier number is to use the ‘Search’ option on the LEIL website. The Search page also provides the possibility to fetch results from other countries and LOUs.

Similarly, to search for entities from all around the world, the best place to search would be the ‘Global LEI index’. This is a central repository which contains data from all LOUs and it can be accessed through the search page, on the website of Global Legal Entity Identifier Foundation.

The search can be done by using the LE ID; or the registered name of the company; or the address of the company. And the search results will display the status of the entity, the registration status of the LEI no, country of registration, LOU details etc.

LEI vs ISIN

A very similar idea of allocating a unique identifier to all financial securities is the International Securities Identification Number (ISIN). The ISIN is a unique 12-digit alphanumeric code which follows a fixed universal format and it is therefore recognized all around the world.

A separate ISIN is allocated to all the types of securities, even if they belong to the same company. For example, if a company has listed Equity shares, Bonds and Preference shares, then a unique ISIN will be allocated to all 3 securities.

So, the major difference between LEI and ISIN is that the LEI is used for pointing out the legal entities, whereas the ISIN is used for identifying the financial instruments that have been issued by these entities.

In fact, these two codes are used together and there can be multiple ISINs mapped to 1 LE Identifier. For example, when 1 company has different category of shares, then the ISIN for each category of shares will be linked to the LEI of that company.

Disclaimer

  • This page is for education purpose only
  • Some information could be outdated / inaccurate
  • Investors should always consult with certified advisors and experts before taking final decision
  • Some images and screenshots on this page might not be owned by FinLib
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