RBI: Legal Entity Identifier

What is meant by a legal entity identifier?

The legal entity identifier is a unique 20-character alphanumeric code based on the ISO 17442:2012 standard which is used to identify each party separately to the financial transactions all over the world while improving the quality and accuracy of the financial data systems so that better risk management can take place after the global financial crisis. 

The Legal Entity Identification (LEI) number was introduced by the central bank of the country in a phased manner for the participants in the derivative and non-derivative markets, large corporate borrowerings, over-the-counter (OTC), and large financial transactions in centralized payment systems. Having the LEI does not imply that a company is eligible to legally operate in the financial markets. Also, a single legal entity is always assigned one Legal Entity Identification (LEI) globally. 

It was on 5 December 2020 that the legal entity identification number was introduced by the Reserve Bank of India to track all financial transactions exceeding Rs 50 crore. However, LEI came into effect on 1 April 2021. 

It is on 10 December 2021 that RBI notified that the firms will have to quote the 20-digit LEI number if cross-border transactions of Rs 50 crore or more are initiated by them from 1 October 2022. 

The structure of Legal Entity Identification (LEI)

The LEI is a 20-character alphanumeric code based on the ISO 17442:2012 standard. Here is the structure of the Legal Entity Identification (LEI):

• Characters 1-4: The characters 1 to 4 in LEI number are a four-character prefix that is assigned by the ROC Secretariat, unique to each Local operating unit (LOU).
• Characters 5-6: The fifth and sixth characters in LEI number are reserved and are always set to 00.
• Characters 7-18: The characters 7 to 18 in LEI number consist of both digits and letters which are generated and assigned by LOU according to the transparent and sound allocation policies. The combination of these 12 characters is unique to the legal entity. 
• Characters 19-20: The characters 19 and 20 in the LEI number are check digits under ISO 17442.

Who is applicable for the LEI?

When it comes to the legal entity identifier applicability, it is essential for the entity registered in India to apply for the Legal Entity Identification (LEI) code as notified by the central bank of the nation time and again. The legal entity identifier can be requested for all the firms or parties in a financial transaction including but not limited to:

• Registered companies including registered branches or subsidiaries
• Funds or Trusts
• Non-profit or charitable organizations
• Sole proprietor 
• Government bodies and organizations
• Branch offices
• Partnership firms

An individual or operating division is considered out of the scope of the legal entity identifier applicability. These entities are allowed to utilize the Legal entity Identification of their parent organization. 

The Registration Process for Legal Entity Identifier

The below-mentioned steps are to be followed for the legal entity identifier registration:

1. First, a firm is required to fill in the information as requested by the LEI number registration application form. Usually, the data of the companies are automatically collected from the Company Register Database. In case one is applying for the legal entity identifier registration of a trust or pension scheme, then it is necessary to upload the Trust deed for verification of the legal address. 
2. In the next step, the applicant needs to submit the LEI number registration application and pay the prescribed registration fee with a credit card or PayPal account.
3. In last, the LEI registration data of the applicant will be sent for data validation and the LEI number is sent to the applicant by mail.

Documents Required to Submit to LOU for processing LEI applications:

The below mentioned are some documents that a legal entity is required to submit to register for the legal entity identifier but are not limited to:

• Certificate of Incorporation or Registration Certificate
• PAN Card Proof
• Undertaking-cum-Indemnity according to the prescribed format of LEIL
• Audited financial statements of the company
• Board resolution according to the prescribed format of LEIL
• Power of Attorney according to the prescribed format of LEIL

Conclusion

The legal entity identifier is a unique 20-character alphanumeric code that is used to identify each party separately to the financial transactions all over the world. The LEI was introduced by RBI on December 5, 2020, to track all financial transactions exceeding Rs 50 crore. It is on 10 December 2021 that it was made necessary for the firms involved in the cross-border transactions of Rs. 50 crore or more to have an LEI code. The LEI code is valid for one year from the date of issuance of the Legal Entity Identification (LEI) number or the last renewal date.