A term that is frequently used in the financial world is LEI. But what is an LEI and what does it stand for? An LEI or a Legal Entity Identifier is a 20-character, unique, alpha-numeric code that identifies companies and legal entities that are active in transactional markets that involve securities or derivates. The Legal Entity Identifier can identify anything from a company to a trust or a charity as well as the persons behind the legal entity. All legal entities that are making transactions in European transactional markets are affected by the requirements for LEI that is embedded in the MiFID II directive.
Why the LEI code is needed
The purpose with the LEI system is to improve the transparency in transactional markets and financial data system. An LEI can be used for relevant authorities that need to identify companies and legal entities behind specific financial transactions. All LEI codes can be found in an open database at GLEIF.org. GLEIF is the international organization behind the LEI system and stands for Global Legal Entity Identifier Foundation. The LEI database is open for anyone to search for a LEI code or a legal entity such as a company, a charity, a trust, a foundation or an association.
Each LEI Number is unique and based on the global ISO 17442 standard. Authorities such as Financial Conduct Authority, U.S. Securities and Exchange Commission and Swedish Financial Supervisory Authority can track all parts that are involved in specific transactions in the securities market. The result of this is an increased transparency in the securities market and a better quality of financial information
How do I know if an LEI is required?
If you have a company of any kind that is engaged in financial transactions in European transactional markets, you need an LEI Number. This according to the EU directives MiFID II, MiFIR and EMIR. An LEI code is needed for all parties that is involved in a transaction. The requirement applies regardless if you are buying (or selling) stocks, bonds or derivatives.
Without a valid LEI Number your transaction in the securities market will be denied by your bank or online broker. You can register LEI here to continuing being active in European transactional markets. When you have registered a LEI code this code will be active for a year. After that you need to renew the LEI if you don’t want it to lapse. The price for LEI varies between different registration agents. The only fee that is fixed is the annual GLEIF fee of $11. Some registration agents such as LEI Register includes this fee in the ordinary price.