How corporate financiers can benefit from a secure global payment ecosystem

15 februari 2024

The ongoing digitalisation and globalisation of financial markets bring new challenges and opportunities for corporate financiers. The legal entity identifier (LEI) is a key factor in creating a more secure and efficient global payments ecosystem. In this article, we look at how the LEI is helping to make cross-border payments more secure and the benefits for corporate financiers. We also discuss the necessary further development of the service and supplier ecosystem.

The role of the LEI in cross-border payments

The Legal Entity Identifier (LEI) is essential for identifying companies in global financial transactions. By adopting the LEI, corporate financiers can realise benefits in several areas, including onboarding, fraud prevention, and operational efficiency. However, to fully realise these benefits, the LEI must be integrated into the existing service and supplier ecosystem.

Guillermo De la Fuente, board member of the Association of Corporate Treasurers in Switzerland and the European Association of Corporate Treasurers (EACT), emphasises that the LEI is particularly attractive for corporate financiers because it increases transparency and security in cross-border payments. By identifying legal entities across the entire payment flow—from the Know Your Customer (KYC) process to the verification of account holders—the LEI significantly contributes to reducing risks and increasing efficiency.

Challenges for corporate financiers and the solution provided by the LEI

Corporate financiers often face the challenge of identifying suspicious activity in cross-border payments and uncovering criminal networks. The fragmentation of global financial markets makes a coherent and typical response to these challenges difficult, often resulting in high costs, slow settlement processes and a lack of transparency. This is where the LEI comes in.

The Financial Action Task Force (FATF) has identified data exchange and standardisation as critical approaches to combating money laundering (AML) and terrorist financing (CFT). As a universal company identifier, the LEI can play a central role by improving the transparency and traceability of financial transactions.

Another important step towards a more secure financial system is the integration of the LEI into ISO 20022 payment messages. Swift’s Payments Market Practice Group (PMPG) recently highlighted the benefits of this integration, including improved data quality, more effective risk management and greater regulatory compliance. These developments are helping to create a more secure and connected global financial system.

Extending the benefits of the LEI to instant payments

With the increasing spread of instant payments worldwide, the integration of the LEI into payment processes is becoming increasingly important. In its planned legislation on instant payments, the European Union plans to introduce the LEI into IBAN name matching. This development will enable payment service providers (PSPs) to use the LEI to verify payees, which could significantly improve the security and efficiency of payment transactions.

Of particular note is that the EU rules are expected to cover not only instant payments but all credit transfers. This would allow payment service providers to apply the LEI in a broader context, which could significantly improve transparency and security in cross-border payments.

Countries such as the UK and India have already started integrating the LEI into their market infrastructures, which can serve as a model for other countries. These measures will allow financial institutions and service providers to use the LEI to better validate accounts and payees, ultimately contributing to a more secure and efficient global financial ecosystem.

The role of service providers and future developments

Support from suppliers and service providers is essential for the LEI’s benefits to be fully realised. Many innovative companies, such as Moody’s and Ceviant, have already started integrating the LEI into their onboarding processes to increase efficiency and minimise fraud risks. These developments demonstrate the LEI’s potential to improve operational efficiency while increasing security in global payments.

Guillermo De la Fuente, recently appointed co-chair of GLEIF’s Vendor and Service Providers Relationship Group, sees his role as fostering communication between corporate financiers and service providers. This should help create a deeper understanding of the LEI’s benefits and support the implementation of new legislative initiatives, such as the EU legislation on immediate payments.

The LEI is the key to a secure and efficient payment ecosystem.

The Legal Entity Identifier (LEI) creates a more secure and efficient global payments ecosystem. For corporate financiers, the LEI offers numerous benefits, from improved fraud prevention to more efficient cross-border payment processing. The ongoing integration of the LEI into global financial standards and processes will further increase transparency and security and strengthen trust in international financial transactions.

The future development of the LEI system will largely depend on how well service providers and suppliers integrate the LEI into their systems and utilise the associated benefits. With the support of the international community and through continuous innovation, the LEI will continue to play a central role in the global financial landscape.