Rethinking cross-border payments: the role of the Legal Entity Identifier
12 December 2023
How the Legal Entity Identifier (LEI) simplifies cross-border payments
In a globalised world where cross-border payments (CBPs) play a central role, making these processes efficient and transparent is becoming increasingly important. This is where the Legal Entity Identifier (LEI) comes into play. It is an internationally recognised standard for identifying companies that can help simplify transactions and meet regulatory requirements.
Advantages of the LEI for cross-border payments
The introduction of LEI numbers for cross-border payments is being promoted by various global players. Institutions such as the Wolfsberg Group and the Committee on Payments and Market Infrastructures (CPMI) emphasise that the LEI can significantly increase the efficiency of international transactions through its universal acceptance and automation capabilities.
With the Legal Entity Identifier, companies can provide detailed and structured data on transaction partners. This leads to improved transparency and reduces the manual effort involved in processing payments. In a report by the Financial Stability Board, the LEI is emphasised as an essential tool for improving CBPs.
Challenges and solutions: Standardisation in KYC processes
Despite the benefits offered by the Legal Entity Identifier (LEI), challenges remain, particularly in the Know Your Customer (KYC) onboarding and risk assessment. The methods for implementing these processes vary from jurisdiction to jurisdiction, which can lead to inefficiencies.
The increased introduction of the LEI could help standardise and optimise these processes. Regularly maintaining and updating the company data associated with an LEI number will ensure that all parties involved have access to current and verified information, which provides additional security and confidence in cross-border transactions.
Up-to-dateness and reliability of company data through the LEI
A key advantage of the Legal Entity Identifier is that it continuously updates company data. Every company that has an LEI is obliged to update its data annually. This regular review by the LEI issuers guarantees that the information is always up-to-date and correct.
In addition, LEI data is publicly available, providing greater transparency and security for all parties involved in a cross-border transaction. Companies can rest assured that the reference data they require for CBP transactions is always correct.
Conclusion: The LEI is the key to the future of cross-border payments
As more and more regulators and organisations recognise the benefits of the Legal Entity Identifier, its use in cross-border payments will continue to grow. The LEI promotes efficiency and transparency and provides a straightforward solution to the challenges posed by different jurisdictions.
The continued adoption of the LEI will further improve global financial markets and ensure that organisations can interact more efficiently in an increasingly interconnected world.
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