Payment systems

Legal Entity Identifier (LEI)

 The legal entity identifier (LEI) is a universal system that uniquely identifies legal entities, and it has been particularly conceived for identifying participants to financial transactions. As a result of the difficulties that arose in the Lehman Brothers crisis for assessing the interdependencies in the global financial markets, the G20 initiated the LEI project aiming at providing more transparency to the markets. The core objective is improving the assessment and management of systemic risk by providing a more precise and complete picture of the risks overtaken by each participant. Furthermore, the LEI system will help entities to improve their own risk assessment and will facilitate their orderly resolution.

The LEI follows the standard ISO 17442, which defines its structure (a 20-digit alphanumeric code), as well as the basic data that should be kept (official name of the legal entity, address of the headquarters, date of the first LEI assignment…). This basic information has been expanded as the design of the system has evolved. Additionally, information regarding the ownership relations among entities has gradually been collected since May 2017. Given that one of the key features of the LEI is its public scope and dimension, both the identifier and all those data that are not subject to confidentiality restrictions is freely accessible.

This initiative has not only consisted on building an identifier element, but also a whole governance system around it, with the aim of protecting public policy objectives while promoting an active participation of the private sector. A three-tier federated model has been established:

  • Regulatory Oversight Committee (ROC): comprised of authorities from the four identified regions (America, Asia-Pacific, Africa and Europe), it holds ultimate responsibility of the LEI. Since its constitution, Spain is full member of the ROC and it is represented by Banco de España.
  • Global Legal Entity Identifier Foundation (GLEIF): non-profit foundation designed as the Central Operating Unit (COU) which has been entrusted with the task of managing the system, under the ROC supervision. As such, it is responsible for ensuring the use of uniform operational standards, the implementation and use of the LEI system according to the agreed Principles and the promotion of its progressive adoption by the market.
  • Local Operating Units (LOU): public or private entities in charge of implementing the LEI system at local level by providing the identifier to the entities that request it and registering the reference data associated to each code.

The ROC was founded in January 2013, and aiming at deploying the system as soon as possible, an interim solution was launched by which pre-LOUs could issue equivalent codes (pre-LEIs). The GLEIF is currently working on both accrediting the existing pre-LOUs, in order for them to become LOUs and, thus, conform the final system, and certifying any new organisation that may wish to start providing LOU services.

In the case of Spain, the interim identifiers are issued and maintained by the Registro Mercantil.

In the European context, the use of the LEI code was initially required to identify parties in a derivative contract under the reporting obligation to Trade Repositories. Later on, the European Banking Authority (EBA) recommended also the use of this identifier for reporting in the framework of banking supervision. During the past few years the use of the LEI for regulatory purposes has expanded. The GLEIF regularly monitors all the regulatory initiatives and publishes a list on its website.