Escali Blog

What is the LEI code?

Sep 29, 2020 2:48:30 PM / by Gerdt Vedeler

Introduction

LEI (Legal Entity Identifier) is an international identification number which is used for legal entities (e.g. companies or government entities) operating in financial markets. Institutional investors including banks, insurance companies and pension funds use LEI codes as they are required for supervisory reporting. LEI codes are also useful in the calculation of solvency capital requirements.

The LEI is a unique 20-character alpha-numeric code based on the ISO-17442 standard.

Here is an example:

example LEI

The LEI standard aims to give better transparency in the financial markets by standardising how counterparties are identified, on a global basis. This simplifies the calculation of, concentration and counterparty risk related to financial investments.

Most entities that operate in the financial markets (by issuing shares, bonds and funds, or by investing in such instruments) must have a LEI code. A LEI code can be obtained from any of the issuing organisations around the globe, provided they are qualified to validate LEI registrations within the jurisdiction of the entity in question. Here are a few examples of such LEI issuing organisations:

A full list of LEI issuing organisations is available on the GLEIF website. Here you can also filter by jurisdiction.

Where do I find the LEI code?

 

The LEI code for an entity is easy to find via the global LEI register https://www.gleif.org/en/

Here you can find the LEI for any company or entity in the world which has a valid LEI code, by entering its legal name. This is an open register where searches are free and available for all.

The basic information in the LEI-register includes the following:

gleif register

 

You will also find the company’s group affiliation, with information about which company is the direct parent, as well as the ultimate parent.

What do you need the LEI code for?

 

In addition to being required for supervisory reporting (including Solvency II for insurance companies and the EIOPA reporting for pension funds) the LEI code is very useful when analysing concentration and counterparty risk.

Firstly, it is much easier to maintain a counterparty register without duplicates when you use a global and unique identifier.

Company name is somewhat limited as an identifier, as company names are often abbreviated in different ways. For instance, Barclays Bank PLC may be abbreviated to Barclays, Barclays Bank, Barclays PLC etc. It can differ in different sources of investment data (for example from different fund managers). Anybody who has worked with the fund look-through data when calculating concentration risk will have experienced this issue.

The use of the LEI code simplifies this work greatly. If asset and fund managers deliver data with LEI code for issuers, the problem with duplicates vanishes or is substantially reduced.

National company or entity numbers can also help eliminate duplicates, but the global LEI is much more accessible and useful as most portfolios contain international investments.

The inclusion of information about the group structure, including parent and child companies also helps assess risk related to investments.

Accurate calculation of concentration and counterparty risk requires those risks related to the same counterparty to be aggregated. This is much easier when you have the group information which is available in the register:

Parent and child info

Tags: EIOPA Reporting, Solvency II reporting

Gerdt Vedeler

Written by Gerdt Vedeler

CEO at Escali Financials Systems