Legal Entity Identifiers SWIFT

With 1.5m organisations around the world now registered with a Legal Entity Identifier (LEI), the LEI has quickly proven its value as the “one identity behind every business”.

The SWIFT Payment Market Practice Group (PMPG) states that “LEIs have huge potential to improve the identification of parties within payment processes, increase efficiency across the system, and automate and improve sanctions and other similar checks.” Now, as regulated usage expands out of specific financial reporting and into new payment standards, the number of LEIs in use is about to increase by an order of magnitude.

Is the LEI, arguably the most important alphanumeric code that many organisations have not yet heard about, really ready for this level of scale? Let’s take a look…

 

The benefits of using LEIs in the payment process

“Improved identity data, such as the LEI, should enable simpler and more accurate reference checking against AML and antiterrorist financing databases.” – Bank of England

The benefits include:

  • Identity data validation can be assured at point of payment processing, meaning that sending and receiving banks ensure payment is sent to the correct entity in a large corporate group.
  • Efficiencies are created as KYC will not interrupt processing.
  • Customer onboarding is streamlined.
  • All parties gain insight into who owns whom (LEI level 2 data).
  • Identify fraud and economic crime can be identified or deterred.
  • The Customer Due Diligence (CDD) process between all entities can be standardised.
  • A democratisation of organisation identity as firms of all sizes, not just the big corporations, can be identified as a true legal entity.

 

The major change driver – ISO 20022

ISO 20022 is driving the inclusion of LEIs in payment messages as it becomes the global standard language for financial transactions. Within five years ISO2002 is expected to be the main language for payments, supporting almost all of the value of transactions worldwide. All the entities involved in the transaction need to be verified legal entities. The LEI will fulfil that requirement:

“As part of the adoption of ISO 20022, and with it the LEI, organizations are recommended to adapt their business processes to ensure that LEIs are captured whenever a new counterparty or customer record is set up.” – PMPG

 

The impact of using LEIs in the payment process

The PMPG also state that “the use of the LEI as a key element in identity management within the payments lifecycle is an opportunity that is just starting to be realized and one that holds great potential”.

This is because:

  • Sending/receiving banks will find themselves at the centre of on-demand LEI issuance.
  • Payment processing solutions will need to be able to issue LEIs to organisations that don’t have one, in order to avoid delays in transactions.

Not only will LEIs improve the speed, transparency and accuracy of transactions, but provisioning and management of the actual LEIs create new business opportunities for all entities involved. There are an estimated 300m organisations worldwide, only 1.5m currently have LEIs. This greatly expanded total market represents a considerable business opportunity for transaction enablers along every part of the supply chain.

However, if all entities involved in SWIFT transactions need an LEI, there are practical considerations to fulfilling this requirement at scale.

 

What’s needed & what RapidLEI delivers

LEI issuers (also known as LOUs – Local Operating Units) that invest in modern systems that provide automation, management tools and APIs will better meet the new set of scaling requirements than LEI issuers that rely on legacy, slow, manual, closed system processes. It’s expected that many LEIs will need to be registered in real-time or payment workflows could face interruption.

RapidLEI offers a modern platform designed to meet the needs of issuing LEIs, on-demand and at a global scale:

  • Same session issuance – register the LEI in real time exactly when it’s needed in the process workflow.
  • Low friction, ease of registration through automated systems and integration with the business registries.
  • API to integrate LEI registration into existing workflows and applications.
  • Bulk registration for large scale LEI issuance.
  • Ability for both sending/receiving banks and payment processers to obtain LEIs on behalf of the client, or support the client registering directly.
  • The LEI needs to remain live and accurate, not lapsed – RapidLEI provides multi-year and automated renewal checking.

 

Conclusion

Get ready for the ISO 20022 / SWIFT changes now. Banks, payment processing companies, and FinTech solution providers need to have a plan for registering and managing LEIs to avoid disruption to core payment workflows.

In summary:

  • Get your LEI in preparation.
  • Build on-demand LEI issuance into payment processing workflows and solutions.
  • Get ready for large scale LEI management.
  • Take advantage of the exploding LEI business opportunity.

 

Talk to RapidLEI today – we’re the fastest growing LEI Issuer, and we’ve designed an LEI issuance and management solution specifically for this level of scale. We can help you support the upcoming changes and make the most of the new global LEI opportunity.

 

Further Reading:

SWIFT Payments Market Practice Group (PMPG) document centre

Adoption of LEI in Payment Messages – PMPG White Paper

Making it easy for Banks to manage LEIs