Who needs an LEI code?
LEI is needed by legal entities that participate in financial transactions and wish to trade in financial markets, such as buying stocks, bonds, or other securities. Many regulations (dependent on jurisdictions) also require obtaining an LEI.
Since the LEI scheme was created, many new regulations have been introduced worldwide. This means entities in various industries now need to apply for an LEI, the details of which are below.
What is an LEI code?
An LEI, or Legal Entity Identifier, is a unique 20-digit alphanumeric code that provides regulated identification for legal entities such as businesses and organizations, especially those in the financial industry.
The aim is to make holdings more transparent and the data on them more connected and easy to access, minimizing any financial risk involved in dealing with such entities across the globe.
However, individuals are not required to have an LEI to trade on the financial market. Therefore, if you are not a company or corporation, you will not need an LEI now.
Mandates in India
In India, the adoption and regulation of LEI codes have been significantly influenced by the Reserve Bank of India (RBI), the Securities Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI).
Currently, legal entities that always require an LEI include financial institutions such as brokerages, banks, investment & insurance companies, and credit unions.
Entities required to obtain an LEI in India
- Listed companies: All companies listed on Indian stock exchanges, including equity—and debt-listed entities, must have an LEI code.
- Large corporate borrowers: Any corporate borrower with an outstanding credit of ₹5 crore or more must obtain an LEI. This requirement extends to borrowers from banks, non-banking financial companies (NBFCs), and primary (urban) cooperative banks.
- Regulated entities: This includes banks, NBFCs, insurance companies, and pension funds, all of which must acquire an LEI for compliance and transparency in their financial dealings.
- Entities engaging in cross-border transactions: All entities in India involved in cross-border transactions, such as borrowing from overseas or engaging in international financial markets, must obtain an LEI.
- Participants in derivative markets: Entities involved in credit derivatives, Rupee interest rate derivatives, or any foreign currency derivatives must have an LEI, except for individuals.
- Participants in government and money markets: An LEI is required for those who engage in government securities, money, and non-derivative forex markets transactions.
- Large payment transactions: Entities making payment transactions of ₹50 crore or more using RBI-managed systems like Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) must obtain an LEI.
Implementation timeline and compliance
The RBI has set a phased implementation schedule for LEI registration among borrowers based on their exposure levels:
- Entities with exposure above ₹25 crore were required to obtain an LEI by April 30, 2023.
- Entities with exposure above ₹10 crore and up to ₹25 crore were required to obtain an LEI by April 30, 2024.
- Entities with exposure above ₹5 crore and up to ₹10 crore need to obtain an LEI by April 30, 2025.
Failure to comply with these requirements can lead to the denial of credit, renewal, or enhancement of existing exposures
Mandates in the rest of the world
In addition to regulations affecting entities in India, various mandates impact businesses and individuals globally.
Investment firms and their clients (EU)
Investment firms and their clients are another type of organization that requires an LEI, specifically within the EU. This is because of the MiFID II/MiFiR regulations that became law in January 2018.
EU authorities must refuse trades between investment firms and their clients unless both sides have an LEI code. This situation is primarily known as – ‘no LEI, no trade.’ If your organization falls under these MiFID II/MiFiR requirements, you can apply for an LEI through the LEI Register.
Government agencies (USA)
Other types of legal entities, including many US government financial agencies, will also need an LEI. This is primarily because the Office of Financial Research has made the LEI mandatory.
Such agencies include the Federal Reserve System (FED), the Commodity Futures Trading Commission (CFTC ), and the National Association of Insurance Commissioners (NAIC).
RTOs and ISOs
Since 2015, US government entities outside the finance sector will also require LEIs. The Federal Energy Regulatory Commission (FERC) mandates that all RTOs (Regional Transmission Organizations) and ISOs (Independent System Operators) have an LEI.
