ORIGIN AND NEED OF LEI
The story of LEI Code starts 40 years ago from the BARCODE REVOLUTION in 1974, when Wrigley’s Chewing Gum packet with a BARCODE swiped under an electronic reader in a Super Market. This was the First time that any machine had “read” any item with a standardised 11 digit bar code label.
Since then Barcodes have become popular and standardised hence Shops and Suppliers can manage Goods with extra ordinary efficiency. Digital Networks can now read the Label anywhere on the Globe.
Until recently there was not even a Standardised system for labelling the different Legal Entities that are involved in Financial Deals.
Thus, after the LAYMAN BROTHERS collapsed, the Authorities were started to discover that the Layman had thousands of different legal entities, all the entities were making trading and most of which have never been tracked.
Now the questions before authorities were:
“Does the Financial Market also need a BARCODE REVOLUTION?”
“Could the similar Revolution now be started in high Finance?”
“Will LEI be answer to above?”
A Legal Entity is known by many different Identification numbers at different Institutions for the transaction it does with anyone in the market, For example Exchanges and Clearing and Settlement Agencies like NSE, BSE, CCIL and NYSE all have different Identification Tags for same Entity.
If a Regulator want to know the following about any Entity:
What is the Exposure of Entity?
Which are Associates, Subsidiaries, Subsidiaries of Subsidiaries and Holdings of the Entity?
What is the Percentage of Shareholding that Each Entity has in its Chain of related Entities
How much Money is borrowed by the Entity?
Which type of Borrowing is taken and who is the Financier?.
How much Money is invested and Financed by the Entity?
To whom Money is financed and Where Money is Invested?
Then the Regulator will have to approach different Authorities, different Exchanges, Banks and more, it will face the Problems like different Data in Different Formats under Different Names. Regulator will have to follow the lengthy Reconciliation and Consolidation to get what they need.
Legal Entity Identifier Code is the only answer to it which provide all the information related to financial transactions to the Regulator about any Entity at one place at one time in standardised Format.
Due to high Regulations and Laws in Different Countries, the Entities have to comply with different regulatory requirements in different Jurisdictions.
LEI Code is a common thread that runs through Regulations in most jurisdictions / Countries and will help the Company to comply with the evolving regulatory environment globally
“TRANSPARENCY IS THE NEW MANTRA”
Transparent Market makes the most efficient and productive allocation. And Transparency is the foundation of LEI. LEI is a step to contribute the transparency and safety in the market.
GLOBAL LEI SYSTEM (GLEIS)
In 2011, the Group of Twenty (G20*) called on the Financial Stability Board (FSB) to provide recommendations for a Global Legal Entity Identifier (LEI) and a supporting governance structure. This led to the development of the Global LEI System which, through the issuance of LEIs, now provides unique identification of legal entities participating in financial transactions across the globe.
In June 2014, the Global Legal Entity Identifier Foundation (GLEIF), a not-for-profit organization was created to support the implementation and use of the LEI. GLEIF services ensure the operational integrity of the Global LEI System. GLEIF is overseen by the LEI Regulatory Oversight Committee, which is made up of representatives of public authorities from around the globe. LEI issuers – also referenced as Local Operating Units (LOUs) – are the organizations authorized to issue LEIs to legal entities engaging in financial transactions.
* G20: An international organization consisting of representing 20 major countries (90 percent of the world’s GDP) like seven developed countries(G7), the chair countries of the European Union, and twelve rising nations
The Global LEI System operates in three tiers:
1. LEI Regulatory Oversight Committee (LEI ROC):Represents Public Financial Market Authorities from the around World.
2. Global Legal Entity Identifier Foundation (GLEIF): Ensures the operational integrity of the Global LEI System.
3. LOCAL OPERATING UNITS (LOU): Issue LEIs to Legal Entities.
WHAT IS LEI CODE?
LEI Code is a 20 Character International Unique Identity Code assigned to Entities who are Parties to Financial Transactions. Globally Use of LEI has expanded beyond derivative reporting and it is being used in area relating to Banking, Securities Market, Credit Rating, Market Supervision etc. The LEI is a global standard, designed to be financial data that is freely accessible to all.
The structure of the global LEI is determined in detail by ISO Standard 17442 and takes into account Financial Stability Board (FSB) stipulations.
NOTE: LEI IS NOT APPLICABLE ON INDIVIDUALS
Breakup of 20 Characters of LEI is as follows:
|First Four Characters (1-4)||Fifth & Sixth Character (5-6)||Seventh to Eighteenth Characters (5-18)||Ninteenth to Twentieth Character (19-20)|
|First 4 Characters are Identification Numbers of LOU (For LEIL it is 3358)||These are reserved Digits -Set to Zeros (00)||There 12 Characters are Alphanumeric Random Number set according to transparent and sound allocation Policies||These are calculated and checked Digits under ISO 17442|
LEI IN INDIA
LEI system was introduced for the first time in India by Reserve Bank of India on June 1, 2017 by notification in which All the Eligible Participants in the OTC derivatives Markets were covered under LEI System.
Thereafter on November 2, 2017, all large Corporate Borrowers were brought into the preview of LEI System.
Recently on November 29, 2018 by Notification Reserve Bank of India Covered All Participants in non-derivative markets in LEI System.
WHO ARE COVERED IN LEI SYSTEM IN INDIA?
1. All Eligible Participants in the OTC Derivatives Markets.
2. Large Corporate Borrowers.
3. All eligible Participants in Non-Derivative Markets
LEI FOR PARTICIPANTS OTC DERIVATIVE MARKETS
Reserve Bank of India vide notification dated June 1, 2017 has decided to implement the LEI system for all participants in the Over-the-Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India, in a phased manner. Accordingly, all current and future participants would be required to obtain the unique LEI code as per time lines given below in table. Entities without an LEI code would not be eligible to participate in the OTC derivative markets, after the date specified in table.
|TIME LINE FOR IMPLEMENTATION OF LEI FOR VARIOUS ENTITIES|
|Phase||Entities||Date by which the LEI Code is to be obtained|
|Phase I||Entities regulated by RBI / SEBI / IRDA / PFRDA and Corporates With Net Worth above Rs 10000 million||August 1, 2017
|Phase II||Corporates With Net Worth between Rs 2000 million and Rs 10000 million||October 1, 2017|
|Phase III||Corporates With Net Worth between Rs 700 million and Rs 2000 million||December 1, 2017|
|Phase IV||Corporates With Net Worth between Rs 700 million and below||March 31, 2018|
LEI FOR LARGE CORPORATE BORROWERS
Reserve Bank of India vide notification dated November 2, 2017 has decided to implement the LEI system for all borrowers of banks having *total fund based and non-fund based exposure of Rs. 5 crore and above, in a phased manner. Accordingly, it has been decided that the banks shall advise their existing large corporate borrowers having total exposures of Rs. 50 crore and above to obtain LEI as per time lines given below in table. Borrowers who do not obtain LEI as per the time table are not to be granted renewal / enhancement of credit facilities after the date specified in table. A separate roadmap for borrowers having exposure between Rs. 5 crore and upto Rs. 50 crore would be issued in due course.
TIME TABLE FOR IMPLEMENTATION OF LEI FOR LARGE CORPORATE BORROWERS
TOTAL EXPOSURE TO CORPORATE BORROWERS
Date by which the LEI Code is to be obtained
|Rs. 1000 crore and above||March 31, 2018|
|Between Rs. 500 crore and Rs. 1000 crore||JUNE 30, 2018|
|Between Rs. 100 crore and Rs. 500 crore||March 31, 2019|
|Between Rs. 50 crore and Rs. 100 crore||December 31, 2019|
|Between Rs. 5 Crore and Rs. 50 crore||Yet to be notified|
*TOTAL FUND BASED AND NON-FUND BASED EXPOSURE means credit exposure (fund based and non-fund based credit limit) and includes but not limited to loans, cash credit facility, Bank Guarantee, letter of credit, Commercial Paper/Corporate Bonds outstanding, forex/derivatives exposure limits.
LEI FOR PARTICIPANTS IN NON-DERIVATIVE MARKETS
Reserve Bank of India vide notification dated November 29, 2018 has decided that All participants, other than individuals, undertaking transactions in the markets regulated by RBI viz., Government securities markets, money markets (markets for any instrument with a maturity of one year or less) and non-derivative forex markets (transactions that settle on or before the spot date) shall obtain Legal Entity Identifier (LEI) codes by the due date indicated in the table given below. Only those entities that obtain an LEI code on or before the due dates applicable to them shall be able to undertake transactions in these financial markets after the due date, either as an issuer or as an investor or as a seller / buyer. Transactions undertaken on recognized stock exchanges are outside the purview of the LEI requirement.
In case of non-derivative forex transactions, while all Inter-Bank transactions shall be subject to LEI requirement, Client transactions shall require LEI code for transactions involving an amount equivalent to or exceeding USD One Million or equivalent thereof in other currencies.
Non-resident entities undertaking financial transactions in the relevant markets shall also require LEI code. Such entities that are not legal entities in their country of incorporation (e.g., funds operated by a non-resident parent/management company that are each registered as an FPI) shall use the LEI code of the parent/management company.
Entities responsible for executing transactions, reporting or for depository functions in these markets shall capture the LEI code of the transacting participants in their systems.
Due Dates for Implementation of LEI in the Money market, G-sec market and Forex market
|Phase||Net Worth of Entities||Date by which the LEI Code is to be obtained|
|Phase I||Above 10000 million||April 30, 2019|
|Phase II||Between Rs. 2000 million and 10000 million||August 31, 2019|
|Phase III||Up to Rs. 2000 million||March 31, 2020|
NET WORTH means net worth as per the section 2 (57) of the Companies Act, 2013.
OBTAINING A LEGAL ENTITY IDENTIFIER (LEI)
The Global Legal Entity Identifier Foundation (GLEIF) is not directly issuing Legal Entity Identifiers, but instead it delegates this responsibility to Local Operating Units (LOUs). Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF). In India LEI code may be obtained from Legal Entity Identifier India Ltd, a subsidiary of the Clearing Corporation of India Limited (CCIL), which has been recognised by the Reserve Bank of India as issuer of LEI under the Payment and Settlement Systems Act, 2007and which is accredited by the Global Legal Entity Identifier Foundation (GLEIF) as the Local Operating Unit (LOU) in India for issuance and Management of LEI.
STEP BY STEP PROCEDURE TO OBTAIN LEGAL ENTITY IDENTIFIER CODE (LEI)
1. Registration at LEI is an online process
2. Visit at LEI Portal and click on Create an Account
3. Fill the requisite information and click on Submit
4. Email for Verification will be received on Authorised Person’s Email, Verify the same before proceeding further.
5. Login to your account at LEI Portal
6. Click on Register in the Tab LEI Services
7. Fill the Application Form and save each page after completing the same. Important Information required is as follows:
8. Select the Mode of Payment and fill the Billing Details and Submit the Application.
9. You will receive the reference Number of Your Application with Draft Copies of Documents from LEI Department at your mail ID
10. Complete the Documents and send the same to LEI Department at following Address:
Legal Entity Identifier India Limited,
CCIL Bhawan, Third Floor,
S.K. Bole Road, Dada (West), Mumbai-400028
11. The LEI Department will verify the Documents and on proper verification make the payment as per the payment mode selected.
12. Within 3-5 days of Payment you will receive the LEI Code and that will be valid for 1 year from date of issuance and will be eligible for renewal thereafter.
DOCUMENTS REQUIRED FOR LEI REGISTRATION
Requirement of Documents is based on the Type of Registering Entity so these may be downloaded from the Legal Doc Download under the Tab Information available at Portal.
Some Common Documents are as follows:
HOW CAN AN OUTSIDER GET INFORMATION ON LEI
You can find the information of LEIs on LEIL web portal in Search Screen. Additionally, the websites of the GLEIF i.e. www.gleif.org also provide information on LEI issued by all LOUs, Access to LEI information through the public area of this website is free of charge.
HOW DOES THE LEI SYSTEM BENEFIT INDUSTRY?
As the global LEI becomes more widely used, it is expected to cut costs and improve risk management by individual firms and across the system. These savings will come primarily from operational efficiencies such as reducing the volume of transaction failures; lowering data reconciliation, cleaning, and aggregation costs; and reducing regulatory reporting costs. A global LEI system will provide long-term benefits to companies by clearly identifying their counterparties and customers and improving internal risk management.
SCOPE FOR A PROFESSIONAL
A Professional by expending his/her expertise to entities regarding registration at LEI, Preparation of Relationship Data and Regular Updates can grab a good professional Opportunity.
CS HITESH JHAMB