Unique identification codes, known as Legal Entity Identifiers (LEIs), were introduced after the financial crisis to identify businesses. LEIs support financial stability, make payments more efficient and enable the shift to a data-driven digital economy.
The LEI is a 20-character alphanumeric code. It is a global standard designed to uniquely identify any legally distinct entity that engages in financial transactions. This includes financial and non-financial companies, trusts, partnerships and governmental organisations.
The LEI was born out of the financial crisis, in response to the need for financial institutions to quickly and accurately identify the parties involved in financial transactions.
LEI records include basic information on the legal entity, including its name, address and ownership structure. The records also provide reference data, such as the domestic business register number.
LEIs offer a number of significant benefits to the financial sector and broader economy, such as making payments more efficient, supporting data portability and bolstering anti-money laundering efforts.
LEIs help businesses, financial institutions and policymakers to more easily link data sets, improving analysis and supporting better risk assessment. Being able to more easily build a complete picture of a business, by linking its data, could also help small businesses to access finance.
Over 1.5 million legal entities in over 200 jurisdictions have registered for an LEI since 2013 (Chart A). The majority of those registered to date are financial institutions and most have registered for an LEI to comply with regulatory requirements.
Chart A The number of businesses globally with a LEI has risen steadily since 2013
LEIs have been successful so far, but there is still work to do, as set out in a recent article co-authored by the Bank of England’s Executive Director, Victoria Cleland. For the benefits of the system to be fully realised, it needs to be more widely adopted.
To increase the number of businesses registering for an LEI, collaboration between the public and private sector is needed to address barriers. For example, policymakers must work with industry to make it easier for businesses to obtain and maintain LEIs (an area of focus for the Financial Stability Board) and to integrate the LEI into national data strategies to facilitate linking and consolidation of data sets.
In November 2018, the Bank of England became the first central bank to announce plans to make it mandatory for LEIs to be used in payment messages for certain transactions between financial institutions.
We want to extend the mandatory use of LEIs to a wider range of transactions in the future. We will champion the LEI as a globally recognised and unique identifier for all businesses in the UK.
This post has been prepared with the help of Sita Patel.
Share your thoughts with us at BankOverground@bankofengland.co.uk
This post is based on a Journal of Payments Strategy & Systems article ‘The value of the Legal Entity Identifier for the payments industry’, co-authored by Victoria Cleland (Bank of England’s Executive Director for Banking, Payments and Innovation) and Gerard Hartsink (Chairman of the Global Legal Entity Identifier Foundation).
Cleland, V and Hartsink, G (2019), ‘The value of the Legal Entity Identifier for the payments industry’, Journal of Payments Strategy & Systems, Vol. 13, No. 4, pages 322-36.