The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.
The Global Legal Entity Identifier Foundation (GLEIF) is the body responsible for managing the implementation of the Legal Entity Identifier (LEI) - a unique global identifier for legal entities participating in financial transactions and helping to establish more transparency in the marketplace. We interviewed Clare Rowley, Head of Business Operations at the Global LEI Foundation to know more about GLEIF and LEI, its latest developments, and further goals.
First, could you briefly introduce the GLEIF? How would you describe LEI for those unfamiliar with the topic?
The GLEIF was established by the Financial Stability Board in June 2014 as a not-for-profit organisation to support the implementation and use of the LEI globally. Put simply, GLEIF enables smarter, less costly and more reliable decisions about who to do business with by supporting the implementation of the LEI and the availability of the Global LEI Index. GLEIF is overseen by the LEI Regulatory Oversight Committee, which is made up of representatives of public authorities from across the globe.
The LEI is a 20-character, alpha-numeric code based on the ISO 17442 standard.
The LEI uniquely identifies legal entities that engage in transactions, thereby helping to create greater transparency in the marketplace.
Each LEI contains information about an entity’s ownership structure and thus answers the questions of 'who is who’ and ‘who owns whom’.
Where does the LEI’s take-up stand now in Europe in particular?
The latest LEI data from Q4 2020 puts the global LEI population at 1.71 million and 67 percent are entities within Europe. The LEI as identifier for all legal entities involved in financial transactions is recognised and integrated into many regulatory frameworks in the European Union (EU) including EMIR1, MiFID II2/ MiFIR3, the Prospectus Directive, ESEF4, MAR5, CRR6, Solvency II, AIFMD7, CRAR8, CSDR9, Transparency Directive and Securitisation Regulation.
The LEI is also achieving momentum across many private sector use cases including corporates, small and medium-sized enterprises (SMEs) and the broader payments industry. They are able to use the LEI as an interoperable identification system to enhance the efficiency in all business processes, such as client onboarding, payments, risk management, and so on. This is an enormous benefit for corporates and SMEs, as well as payment participants as a whole, as it is costly to continually build technical infrastructure to bridge siloed worlds. For example, the BIC-to-LEI mapping program developed by GLEIF and SWIFT enables the payment industry to seamlessly move from the BIC and the LEI.
What are the main benefits of the LEI for European retail payments?
The LEI can bring together the different systems of identification used in the payments industry such as IBAN, BIC and SEPA Direct Debit Creditor Identifier. For example, a multinational corporation could have hundreds of subsidiaries but might only have several BIC codes.
With the uniqueness and interoperability of the LEI, payers and payees are able to know precisely who they are paying, and whether the specific IBAN account number is owned by the correct legal entity. Taking this a step further, the LEI can also help identify the Ultimate Beneficiary Owner (UBO) and help to diminish potential fraud and reduce compliance costs for payment participants and regulators.
Furthermore, the Global LEI Index is open to any interested party, free of charge and without the need to register. For European consumers with different languages and character sets, the LEI reference data provides entity reference data in the native local language of the entity and transliterated (as applicable), enabling participants to determine the beneficiaries and avoid erroneous payments.
How do you see the LEI evolving in the coming few years in Europe?
The LEI has huge potential and GLEIF is working closely with its stakeholder groups to expand LEI usage within private sector initiatives and demonstrate the benefits broader use of the LEI can bring.
Firstly, as a concrete real-world use case of the LEI, embedding the LEI into Digital Certificates will largely enhance authenticity and transparency in online transactions. This is highly applicable to secure trusted payments as it will verify the true identity of the beneficiary and the originator via trust product (the digital certificate) cryptographically bound to the LEI. GLEIF collaborates with Certification Authorities and Trust Service Providers to demonstrate the value the LEI can bring to secure online transactions across a broad range of processes, such as e-Procurement and e-Invoicing.
Another important opportunity is the Validation Agent framework which enables financial institutions to obtain and maintain LEIs for their clients in cooperation with accredited LEI Issuer Organizations. This role is designed to remove the duplication of processes across a financial institution’s client onboarding and LEI issuance, creating a more convenient experience for institutions and their clients. J.P. Morgan was recently announced as the first Validation Agent in the Global LEI System.
Finally, as the recommendations of the European System Risk Board report in identifying legal entities are addressed, it will present new opportunities for the LEI. The report recommends the introduction of a Union legal framework for uniquely identifying legal entities engaged in financial transactions by LEIs; this recommendation is intended for completion by June 2023. GLEIF sees this as a unique opportunity to work with the Commission and member states to efficiently embed the LEI in business registration process and enable all legal entities – both financial and non-financial – to have access to an LEI seamlessly and at low cost at the time of business registration. This opens the doors for entities of all sizes and industries to utilize the LEI in the digitisation of their processes and as a global passport to enable cross-border engagements or transactions.
1. The European market infrastructure regulation
2. The revised Markets in Financial Instruments Directive
3. The revised Markets in Financial Instruments Regulation
4. The European Single Electronic Format
5. Market Access Regulation
6. The Capital Requirements Regulation
7. The Alternative investment fund managers directive
8. The Credit Rating Agencies Regulation
9. The Credit Rating Agencies Directive
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Clare Rowley
Clare Rowley is the Head of Business Operations at the Global LEI Foundation (GLEIF). Prior to working with GLEIF, Ms. Rowley worked at the United States Federal Deposit Insurance Corporation where she led technology initiatives improving bank resolution programs and contributed to research on subprime mortgages. Ms. Rowley is a CFA® charterholder and holds a MS in Predictive Analytics from Northwestern University.