India shows the way: LEI – key in the fight against financial crime

9 apríl 2024

The introduction of the Legal Entity Identifier (LEI) in India is proliferating thanks to regulatory solid support. This trend is a model for global players in the fight against financial crime.

Importance of the LEI for the Indian financial ecosystem

The increasing adoption of the LEI has significantly increased trust and transparency in the Indian financial sector. The Reserve Bank of India (RBI) has been a driving force behind this development and has set several milestones:

June 2017: introduction of the LEI for all participants in over-the-counter (OTC) markets for rupee interest rate derivatives, foreign currency derivatives and credit derivatives.

November 2017: Obligation for large corporate borrowers to have an LEI. Companies without LEI cannot get loan extensions or renewals above ₹50 crore (approx. USD 6 million). A similar roadmap was introduced in 2022 for borrowers with exposures between 5 and 50 crore rupees

November 2018: Introduction of LEI for non-derivative markets, including government securities markets and money markets

January 2021: Mandatory use of the LEI for payment transactions above 50 crore rupees

December 2021: Mandatory LEI for cross-border transactions above ₹ 50 crore

Support from other regulatory authorities

Apart from the RBI, other Indian regulators have also promoted the LEI. In October 2018, the Securities Exchange Board of India (SEBI) recommended the LEI for foreign companies in the commodity derivatives market to fulfil Know-Your-Customer (KYC) requirements. The Insurance Regulatory and Development Authority of India (IRDAI) followed suit in June 2020 and required the LEI for all insurers and corporate borrowers with transactions above 50 crore rupees.

Promoting trust and transparency

The LEI has established itself as a critical business enabler in India. GLEIF reports show India has been one of the fastest-growing countries in LEI issuance since 2020. The expansion of the LEI issuance ecosystem plays a vital role in this. NSDL became the second GLEIF-accredited LEI issuer in India in 2024. Rubix Data Sciences and MNS Credit Management Group also act as validation agents, simplifying and accelerating the LEI issuance process.

Support for micro, small and medium-sized enterprises (MSMEs)

MSMEs contribute up to 30% of India’s GDP, but a lack of international identification capabilities often limits their full potential. The LEI can overcome this hurdle by providing robust business credentials and facilitating access to trade finance and new markets.

International lessons learnt

India is a pioneer in promoting the LEI and provides a compelling example for other countries. Its success shows how the LEI can help increase trust and transparency, especially in the fight against global financial crime. The RBI’s „Payments Vision 2025“ emphasises the role of the LEI in making payments secure, convenient, and accessible.

Global support

Critical international stakeholders such as the Committee on Payments and Market Infrastructures (CPMI), the Wolfsberg Group and the Swift Payment Market Practice Group (PMPG) support the integration of the LEI in ISO 20022 payment messages. This recognition emphasises the importance of the LEI for global payment transactions and the fight against financial crime.

Conclusion

The introduction of the LEI in India provides valuable insight into its potential to combat financial crime and promote transparency and trust. Its success in India shows that the LEI can be a powerful tool in the global financial system.