7 reasons your company should get an LEI Number right now
Imagine you reside in China, and you want to buy a product worth millions of Euros from an Italian supplier you’ve never patronized before; how would you verify the identity of this supplier?
If it was in your homeland country, China, perhaps you could ask from friends, family, colleagues, or even check any reputable online directory. But this is someone living far away from you; where would you look to verify their identity?
Honestly, you may have nowhere to look other than the internet. And to think the internet is a breeding ground for false information, how could you trust what you find?
To be frank, nobody will blame you if you decide to call off the transaction. Why? Because you have no way of verifying the supplier’s identity.
This has been the reality of business transactions for many decades before the arrival of LEI numbers.
What is an LEI Number?
LEI Number, or legal Entity Identifier as they’re called for full, is a unique global identifier for legal entities participating in financial transactions.
By legal entities, we mean for-profit, non-profit, and government organizations. In short, any business system that deals in financial transactions.
What is the purpose of an LEI Number?
LEI numbers were invented to prevent the type of situation illustrated in the intro above. They were designed to help businesses, government bodies, consumers, and individuals identify legal entities on a globally accessible database.
In other words, they were made to help people find everything they need to know about the legitimacy of businesses and brands.
Who can get an LEI Number?
According to Wikipedia, an individual person may not obtain an LEI because they’re specially reserved for legal entities. So, to submit an LEI application, you need to have a business or deal in financial transactions.
Having said that, let’s now get down to the business of the day. Why do businesses need LEI numbers?
5 reasons your company should get an LEI Number right now
The world is filled with so many scams and fraud stories today. If you want people to trust your brand on an international scale, you need an LEI Number.
An LEI Number, which is a 20-character, alpha-numeric code, is based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). With it, customers and buyers can quickly check everything they need to know about a business enterprise on the GLEIF database of issued LEIs.
They can tell who owns a business, what other businesses the person owns, amongst other useful information.
Remember, your international customers will want to know whether you’re a real company. Having a Legal Entity Identifier is a guaranteed way of proving that.
Many financial intermediaries expect legal entities to have a Legal Entity Identifier. When you cannot be identified with an LEI number, some intermediaries might be compelled to block your trades and transactions.
Imagine you have a new trading startup, and you’ve managed to get a couple of clients on board. Then just as you’re about to commence transactions, your clients are told they can’t send money to your accounts because you don’t have an LEI Number. What do you think these clients will do? Many of them will most likely hop off your train.
- Global Validation
In the example given in the introduction section, the merchant will opt out of the transaction because he can’t find a way to verify the identity of who he’s transacting with.
Having an LEI Number helps protect your business from experiencing a similar thing.
Think of it as a global directory of all the companies of the world. With a Legal Entity Identifier, your customers can easily find useful and relevant information about you from anywhere in the world. And more importantly, they can trust that information.
- Business Partnerships and Funding opportunities
Did you know many international financial bodies are likely to deny your funding request if you don’t have an LEI number?
Yes, you read that correctly. In many instances, banks and investors now ask that legal entities submit their LEI code before they’re offered loans or funding.
In short, not having an LEI Number can make an international bank or even a local investor think twice about granting you funding.
- Global approval
Most companies are only known and approved within the walls of their home country. Once they’re out of their jurisdiction, they become relatively unknown and unproven.
Imagine you have a giant establishment in your country, and every time you visit a neighboring country, you’re not even accorded any unique privileges.
Having an LEI Number helps prevent this. It is a way of registering your company on a global scale. Or a way of adding an extra layer of relevance to your establishment.
If customers in your country can search and find you on the National company registries, think of LEI as a way for foreign customers to find out about you.
- Reliable business relationships
Businesses that follow the mandates of LEI are often reluctant to do business with those that don’t. This is to mitigate the weight of risks on their establishment.
When you don’t have an LEI Number, you may find yourself in situations where international suppliers, vendors, associates, and other business enterprises are unwilling to do business with you.
If your company is registered offshore and you deal in international business transactions using another name, the LEI offers multiple “doing business as” naming options. With this feature, businesses can easily stay transparent with their clients from all over the world. No shady dealings. No conflicting identities.
Furthermore, with the “doing business as” naming options, businesses can use their parent company information to create an ownership map, including direct parents, ultimate parents, branches, etc.
By and large, having traceable information about all your business extensions is a great way to showcase your transparency.