Views on improving the integrity of global capital markets
23 January 2018

Requiring the Use of the Legal Entity Identifier

Posted In: Financial Reporting

The Global Legal Entity Identifier Foundation (GLEIF) was founded in 2014 by the Financial Stability Board to support the implementation and use of the Legal Entity Identifier (LEI). As described on the GLEIF,

The Legal Entity Identifier (LEI) is a 20-digit, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). It connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions. Simply put, the publicly available LEI data pool can be regarded as a global directory, which greatly enhances transparency in the global marketplace.

The Financial Stability Board (FSB) has reiterated that global LEI adoption underpins “multiple financial stability objectives” such as improved risk management in firms as well as better assessment of micro and macro prudential risks. As a result, it promotes market integrity while containing market abuse and financial fraud. Last but not least, LEI rollout “supports higher quality and accuracy of financial data overall.”

The LEI is a freely available global identifier being adopted by regulators worldwide for investor and regulator use. LEI use significantly improves the functionality of regulatory filings as LEIs uniquely and unambiguously identify participants in financial transactions and bring clarity to the interrelationships between these entities. In addition, LEI use allows information collected by one regulatory agency  to be easily compared with data collected by other agencies that have committed to using LEIs. The LEI is ideal for this purpose as it is an international identifier that can be used for companies worldwide.

CFA Institute believes that all companies should be required to maintain and report the LEI of a registrant and its major subsidiaries, as this would increase investors’ ability to identify and analyze the risks of registrants and their subsidiaries. However, even taking an initial step of  only those that currently maintain a LEI to report it would be beneficial to the marketplace and would impose minimal burden on registrants.

CFA Institute also believes that LEIs should be used in additional areas throughout the filing to aid investors. For example, a company should be required to use the appropriate LEI when referring to another legal entity.

The benefits to be gained through the use of LEIs grow in line with the rate of LEI adoption. To maximize the benefits of entity identification across financial markets and beyond, GLEIF encourages firms to engage in the process and obtain their own LEI. On behalf of the investor community, CFA Institute does so as well.

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Photo Credit: ©Getty Images/Eyematrix

About the Author(s)
Mohini Singh, ACA

Mohini Singh is director of financial reporting policy at CFA Institute. She represents membership interests regarding financial reporting and disclosure proposals issued by the FASB, the IASB, and others. Singh holds the Associate Chartered Accountant (ACA) designation.

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