Benefits of LEI code
by Abdul Aziz Mondal Finance Published on: 13 December 2021 Last Updated on: 26 September 2024
LEI code is an identification code, and as is with any identification system, it streamlines certain aspects. LEI is a short form for Legal Entity Identifier. It is a code that consists of 20 alphanumeric characters. Alphanumeric means something that consists of both alphabets and numbers.
The purpose of LEI is to bring all legal entities under a common identification system. This will lead to greater transparency in transactions. It will also help in identifying key information related to an entity such as who owns it and what it is about.
Who needs an LEI? The answer is all legal entities are involved in financial transactions.
The following are some of the most important benefits of the LEI code.
A Standardized System
One of the most desirable things under any administration or effective working infrastructure is a common system of measurement and identification. LEI is a step towards enhancing the stability of the finance world. Transactions are not limited to local space, it is done on a global level now. Therefore, it was imperative to develop a system that brings international transactions under a common system.
LEI codes are issued by local operating units or LOUs, they are put in place by GLIEF – a foundation that supports and is responsible for its implementation.
Unique Identification
The LEI code references two key pieces of information regarding a legal entity. The first one is about who the entity is and the second one is about who owns the entity. Both of these pieces of information are the basis for the unique identification of entities. The unique identity of the registered entities under LEI distinguishes them from others. The unique identification helps in greater transparency and marks the transactions happening between two or more entities.
Transparency
The pool of transactions happening every day is huge. The transparency of transactions is an important matter for many reasons. First and foremost because it can help you chart or trace the history of those transactions. The historical record acts as a basis for many future decisions and indicators.
One of them is the assessment of the risk involved in the trading of securities between entities. The transparency facilitated by LEI codes also helps in identifying the debts and backlogs of an entity that strips such entities from window dressing and hides information.
Risk Assessment
The economic crisis of 2008 brought forth many important lessons. A time in history that called for innovations in the financial sectors. The call for a common identification system was a need of the time, the stability of the financial sector was something that the world was looking upon and LEI was that innovative one step forward in the right direction.
LEI gave a unique identification code to the legal entities, the identification gave way to the transparency of transactions, and this, in turn, opened up opportunities for the risk assessment of entities.
So the four most important benefits of the LEI code are a standard system that creates a single accessible database of legal entities, a unique identification code, transparency of transactions, and risk assessment of legal entities. If you want to obtain an LEI code, check out the services of LEI service.
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