LEI Codes in banking, or Legal Entity Identifier, is a 20 digit reference code used across global markets to identify counter-party legal entities engaged in financial transactions. Each LEI code in banking uniquely references a Legal Entity Reference Data record in the Global LEI System database – a free online resource containing the identities of 2m+ organisations.
Any banks or financial institutions engaged in buying or selling stocks, bonds, swaps or other financial instruments would use LEIs to determine the verified identity of the Legal Entities involved in the transaction. That could be a company, fund or trust. The LEI reference data also informs the risk manager or regulator the company structures of those entities transacting, making it transparent when an entity is transacting with a parent or child.
300+ regulations require or recommend the use of LEIs in order to help manage the risk of complex transactions in the post 2008 world. The LEI is endorsed by the G20 as part of the post-2008 financial reforms and is intended to be “the one identity behind every business”. LEI Codes are mandatory for MiFID II / MiFIR, EMIR, SFTR, Dodd Frank Act, and many other Financial Regulations.
Many global banks partner with RapidLEI for management of their LEI Codes. Citi, Nordea, Santander, ING Bank, and JP Morgan Chase are just a few of RapidLEI’s banking customers.
How do Banks use LEI Codes?
Banks use LEI Codes in a number of use cases:
Counterparty Identification: Banks use LEIs to uniquely identify legal entities involved in financial transactions. This helps in accurately identifying counterparties and understanding their roles in transactions, reducing the risk of errors or misunderstandings.
Regulatory Reporting: Many regulatory authorities require banks to report financial transactions and holdings using LEIs.
Risk Management: LEIs can be used in risk management processes by providing a standardized means of identifying counterparties. Banks can use LEIs to assess the risk exposure associated with counterparties, helping in making informed decisions and managing risks effectively.
Transaction Monitoring: Banks use LEIs as part of their transaction monitoring and anti-money laundering (AML) efforts. By accurately identifying counterparties involved in transactions, banks can better monitor for suspicious activities and comply with regulatory requirements related to AML and combating the financing of terrorism (CFT).
Global Transactions: LEIs provide a standardized identification system that transcends borders, making it easier for banks to conduct cross-border transactions. This helps in streamlining processes and reducing operational complexities associated with identifying counterparties across different jurisdictions.
Client Onboarding: LEIs can be used in client onboarding and support CDD and EDD in KYC/KYB (Know Your Customer / Know Your Business) applications.
Overall, LEIs play a crucial role in improving transparency, efficiency, and risk management in banking operations by providing a standardized and globally recognized identification system for legal entities involved in financial transactions.
How do Banks work with RapidLEI?
RapidLEI offers Enterprise LEI for banks to manage internal and external LEIs for group companies and clients.
RapidLEI also offers the LEI Everywhere program for banks to become GLEIF Validation Agents. This allows banks to take advantage of the LEI as a connector of reference data for KYC / AML and counterparty identification and issue LEI during client onboarding.
To use LEI Codes in KYC, the LEI solution needs to be scalable, frictionless, and low cost. This is where RapidLEI can help. We make it easy to not just issue LEI Codes, but also to discover, consolidate and manage both internal LEI Codes and LEI Codes for your banking clients.
