Legal Entity Identifier is a 20 characters unique identifier that is used in the world to recognize legal entities in financial transactions. To improve the financial market transparency, LEI was introduced in 2012. Since it’s launch till now, it has become a need or must for the organizations who are dealing in financial transactions.
There are many LEI agencies that let you register and assists you to resolve your LEI-related issues. Before we look who should get an ELI, let’s discuss further what is LEI.
What is an LEI?
LEI stands for Legal Entity Identifier that is used in financial transactions. It is a 20-character unique alphanumeric code that is given to an organization or an entity by LOU and is authorized by the Global Legal Entity Identifier Foundation (GLEIF). What GLEIF do is to ensure that all data is secure and is up-to-date so that no other issue occurs.
The Legal Entity Identifier (LEI) was introduced to reduce the risks involved in the system, improve transparency in financial transactions, and oversight better regulatory. It helps organizations, companies, stakeholders, regulators and financial institutes to know better with who they are doing business and in this way they can manage their assets and risks.
Who Should Get An LEI?
Public Companies Or Going To Be Public
Companies who are already public or have decided to go public in the near future should get an LEI. The reason is many stock exchanges and the regulators want the company to have an LEI so that they also know with who they are going to do business and what is the company about. It is also possible that some companies may need LEI before IPO process starting.
Companies Involved in Financial Transactions
The companies who are involved in financial transaction must get an LEI. The companies such as banks, investment firms, and insurance companies should get an LEI. It has now become part of the regulations that was set in 2008 to improve your company’s financial transaction transparency and to reduce the systemic risks involved. So without Legal Entity Identifier (LEI) a company can’t do financial transactions.
Those Who Deal With International Operations
It is also important that companies who are doing business with international operations must get the LEI code. The reason is your system is designed to work internationally and you need to do the financial transactions cross the border so if you don’t have an LEI, you can’t participate in the financial transactions. LEI code can help these companies to meet the regulatory requirements and to get access to global markets.
Those Who Deal With Government Agencies
Companies such as contracts and suppliers who deal directly with the government agencies must need an LEI. The reason is most of the government agencies require LEI and without it they can’t do business with agencies. Also the transparency and accountability is hard to done by the government agencies so they require an LEI.
It is also important for non-profit organizations to have an LEI code because there are many donors and grant-making organizations who require LEI code to donate funds. The reason is they want transparency in the financial transactions and to know whether the organization is legit or not. Moreover for international donation and funds, there are financial transactions involved so non-profit organizations must get an LEI.
Why This LEI Code So Important?
There are many reasons for LEI code’s importance. The first one is it is a legal thing for businesses and companies to have LEI because they are involved in financial transactions. If they have no LEI code, they can’t participate in the global markets where financial transactions are very important.
Another reason why LEI is important is because they reduce systemic risks in the market and improve the transparency. After getting a unique identifier code, it becomes easy for regulators and stakeholders to know with whom they are doing business or will do business in near future.
Third reason is having an LEI code, it can improve the trust and credibility with customers and investors. It shows that a company is legit and they are transparent in their financial transactions so there is almost no risk to deal with them. This thing attracts more investors and suppliers thus your business will grow and in the end your company will get more revenue because of more customers.
Fourth reason is companies having an LEI can easily comply with the regulatory requirements in different jurisdictions. As a company have to work internationally so they will need work across borders and have to do financial transactions. So getting an LEI will boost your business and let you connect internationally.
The Legal Entity Identifier (LEI) is a very important code that you get because it improves transparency and reduce systemic risk involved in the financial markets. It let you grow your client base and thus your company grows worldwide. But not all companies require it, only the companies that involve in financial transactions or are going public or companies that work with government agencies or companies with international operations, or non-profit organizations must get an LEI because it is better for their business and company.