Global financial transactions in focus: The ESRB and the path of the LEI into the future

24 mars 2022

The Legal Entity Identifier (LEI) is at the centre of the latest recommendations from the European Systemic Risk Board (ESRB), which highlight the potential of this global identifier to transform financial transactions. According to the ESRB, the LEI could be crucial in making cross-border payments faster, more cost-efficient and more secure. GLEIF, the global organisation behind the LEI, welcomes these recommendations and calls for regulatory adjustments to establish the LEI as the worldwide standard for legal entity identification.

Why the LEI is becoming indispensable for the global financial system

In its paper, the ESRB emphasises that the Legal Entity Identifier (LEI) has the potential to establish itself as the ‘identifier of the global economy’. The LEI makes it possible to retrieve standardised and immediately accessible information about legal entities worldwide, offering significant advantages not only for financial markets but also for all business-to-business transactions.

The path to global regulatory harmonisation

To establish the LEI as a global standard, the ESRB proposes that national business registers and financial institutions play a more significant role in issuing LEIs. National registries could issue the LEI at the time of incorporation, drastically reducing company costs and effort. This strategy could make the LEI accessible for all business and financial transactions while helping global supervisory authorities to fulfil their oversight responsibilities more efficiently.

Challenges to the global adoption of the LEI

Despite the many benefits of the LEI, there are barriers to its widespread adoption. These include:

– Cost of obtaining and renewing the LEI, especially for smaller companies.

– Lack of interest outside the financial sector and lack of legal requirements in many jurisdictions.

– Insufficient updating of the reference data necessary for proper supervision.

The ESRB emphasises that these challenges can be overcome through regulatory adjustments and expanded use of the LEI.

The role of the LEI in payment transactions and in combating money laundering

The LEI could play a crucial role in payment transactions. By identifying beneficiaries and ordering parties, the LEI could make cross-border payments more secure and efficient. The European Banking Authority also supports this integration, which wants to incorporate the LEI into AML (anti-money laundering) processes to increase transparency in the global financial system.

A global perspective: the future of the LEI

The broader adoption of the Legal Entity Identifier (LEI) is seen as a crucial step in the digitalisation of the global economy. The international use of the LEI would simplify cross-border financial transactions and make e-commerce and other digital business models more secure. The ESRB emphasises that the LEI has already achieved international consensus and is the only globally recognised, commercially neutral identification system

Conclusion: The LEI as a pioneer for global transparency

The recommendations of the European Systemic Risk Board (ESRB) and the support of the GLEIF mark an essential milestone for the future of the LEI. Through regulatory adjustments, the support of business registers and the expanded use of the LEI in the financial sector, the Legal Entity Identifier can become an indispensable tool for the security and efficiency of the global economic system.