The Importance of Legal Entity Identifiers (LEI) in Global Trade and Supply Chains

Reporting from the ICC Digital Trade Conference

In today’s interconnected world, supply chains and global trade are complex. With multiple entities involved in each transaction, it can be difficult to track and verify the parties involved. Yet trust, transparency and accountability are essential as we implement interoperable systems across both Government and Industry.

At this month’s International Chambers of Commerce (ICC) Digital Trade Conference in London, the subject of how to prepare the markets to go digital was a hot topic. Over three days, experts from the public and private sector met to discuss best practices and practical solutions to managing risk as trade and supply chains go digital.

Joining a panel were experts from the GLEIF, ICC, Citi Bank, MonetaGo, and the IATBA. Unsurprisingly, the subject of a standardised, global organisation identity, specifically Legal Entity Identifiers, formed a core part of the conversation.

You can see the recorded panel below, or at https://www.youtube.com/watch?v=XVEAs9qDVWg.

“If we want a transparent system where we know who owns the goods, where the goods are coming from, who the parties are, where the finance is coming from, then obviously identity is absolutely crucial. It’s in many ways a more foundational priority than other parts of the digitalisation agenda, and that’s one of the reasons why we are putting such a priority on this whole area of digital identities.”
Chris Southworth, Secretary General of the ICC UK

Let’s step back and see where Legal Entity Identifiers (LEIs) come in. The LEI is the only standardised, regulated and global method to identify verified organisations. Each LEI code is unique, verifiable and provides several benefits in supply chains and global trade. Here’s a closer look at each of these benefits:

Efficiency: LEIs increase efficiency in supply chains and reduce costs of cross-border payments by streamlining Customer Due Diligence (CDD) processes and reducing costs associated with manual data entry and verification. By providing a standardised way to identify legal entities, LEIs make it easier to enjoy paperless trade, uninterrupted trading and transaction tracking between partners.

“We have partnered with Ubisecure, and we are now a Validation Agent able to provide LEI to our clients, and it just made the process so much quicker and easier. And the feedback that we are receiving from onboarding is that clients are really grateful to have the service… And what benefit I can see from a client’s perspective is – they are going to have to go and get an LEI, but they also have to go through all of our onboarding KYC, sending us a lot of documentation. Who wants to do that twice? We can now get the LEI for them. So, it’s a win-win.”
Deborah Hardy, SVP Citi Bank

Compliance: Many regulatory bodies require organisations to have an LEI to participate in regulated financial transactions. There are currently over 300 regulations requiring or recommending the use of LEIs. LEIs are key to ensuring compliance with regulatory requirements, such as Know Your Customer (KYC), Know Your Supplier, and Anti-Money Laundering (AML) regulations. LEIs put transparency into financial transactions to help regulators identify potential risk, such as identifying the transacting organisations and understanding the group structure of parent and children companies acting as counterparties.

Risk Management: LEIs help manage risk in supply chains by providing transparency and visibility into the ownership structure of organisations. Potential risks, including conflicts of interest, fraud such as vendor impersonation, or corruption, can be better identified. The LEI is standardised, following a globally implemented data structure, meaning that LEIs can also help reduce the risk of errors and inconsistencies in data entry.

Transparency: LEIs increase transparency in supply chains by providing a unique identifier for each entity involved in a transaction. The open global standard for financial information (ISO 20022) sees the LEI mandatory in SWIFT transactions and is now in go-live status. This helps ensure that all parties have access to accurate and up-to-date information about the entities they are doing business with. By providing transparency, LEIs promote financial inclusion by helping build trust among partners and suppliers, creating a level playing field for smaller or non-domestic companies to compete. Organisations that commit to obtaining and maintaining an LEI demonstrate credibility within a crowded market.

“In terms of digital trade, we know that there’s a widening gap in finance. So, I think there are some strong links to having an LEI in terms of a digital readiness indicator and also a digital inclusion in digital trade.”
Lisa Short, Co-Chair Digital Credentials Task Force at the International Association of Trusted Blockchain Applications

Standardisation: For years, organisations have needed to deal with different regional, vertical and proprietary organisation identifiers. LEIs provide an interoperable, standardised, globally implemented, way to identify legal entities across different jurisdictions and industries. This makes it easier to compare and analyse data across different organisations and sectors. By promoting standardisation, LEIs can help reduce the risk of errors and inconsistencies in data entry. Such standardisation also supports sustainability initiatives by providing a way to track environmental, social, and governance (ESG) data across the supply chain. This can help organisations identify areas for improvement and make more informed decisions about their supply chain practices.

Data Quality: LEIs improve the quality of legal entity identification and reference data in supply chains by reducing errors and inconsistencies in data entry. This can help organisations make more informed decisions and improve the accuracy of their reporting.

“If I could go back in time, one of the key things I would have done is look at whichever use case you’re struggling with when it comes to legal entity, where LEI can actually add value. For me, it would have been cheaper to actually fund an LEI for every single one of my suppliers than continue to have really expensive people clean data.”
Oswald Kuyler – Head of Strategy at MonetaGo Europe

Integration: LEIs can be integrated with trade, onboarding and entity data management systems to improve supply chain visibility and streamline processes. New technologies broaden the reach of LEIs; for example, LEIs can be incorporated into Verifiable Credentials (see vLEI) and linked to blockchain technology to create a secure and transparent supply chain ecosystem.

“The vLEI has the potential to become one of the most valuable digital credentials in the world because it is the hallmark of authenticity for a legal entity of any kind.”
Drummond Reed, Steering Committee Member, Trust-over-IP-Foundation

As innovators like Ubisecure drive innovative applications for LEIs, particularly to banks and business registries, it’s worth us remembering that even today LEIs are a core tool as trade and the supply chain go digital. In many ways, the journey of the LEI has only just begun.

Learn more: Registering and managing LEIs

Deep dive: Components of the Digitalisation Journey of International Trade and Finance