Legal entity Identifier

The Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code based on the ISO 17442
standard developed by the International Organization for Standardization (ISO). It connects to
key reference information that enables clear and unique identification of legal entities
participating in financial transactions. Each LEI contains information about an entity’s
ownership structure and thus answers the questions of 'who is who’ and ‘who owns whom’.
Simply put, the publicly available LEI data pool can be regarded as a global directory, which
greatly enhances transparency in the global marketplace.

At the time of the 2008 financial crisis, a single identification code unique to each financial
institution was unavailable worldwide. It means that each country had different code systems to
recognize the counterpart corporation of financial transactions. Accordingly, it was impossible to
identify the transaction details of individual corporations, identify the counterpart of financial
transactions, and calculate the total risk amount. This resulted in difficulties in estimating
individual corporations's amounst of the risk exposure, analyzing risks across the market, and
resolving the failing financial institutions. This is one of the factors that made it difficult for the
early evolution of the financial crisis. The LEI system was developed by the 2011 G20,[1] in
response to these inability of financial institutions to identify organisations uniquely, so that their
financial transactions in different national jurisdictions can be fully tracked.[2] Currently, the
ROC (Regulatory Oversight Committee), a coalition of financial regulators and central banks
across the country, is encouraging the expansion of the LEI. Currently, the U.S. and European
countries require corporations to use the legal entity identifier when reporting the details of
transactions with over-the-counter derivatives to financial authorities. The first LEIs were issued
in December 2012.
The technical specification for LEI is ISO 17442.[2] An LEI consists of a 20-
character alphanumeric string, with the first 4 characters identifying the Local Operating
Unit (LOU) that issued the LEI. Characters 5-18 are the unique alphanumeric string assigned to
the organisation by the LOU. The final 2 characters are checksum digits

Advantages of LEI

 n financial transactions, you can reduce the risk associated with the counterpart. You can
measure the total risk of the other party. You can also determine the risk of a particular
trading partner's concentration.

 You can enhance market transparency. As LEI is a code of international currency, it is easy
to detect market manipulation, financial fraud and other disruption acts through the sharing of
international financial transaction information.