ORIGIN AND NEED OF LEI
The
story of LEI Code starts 40 years ago from the BARCODE REVOLUTION in 1974, when Wrigley’s Chewing Gum packet with
a BARCODE swiped under an electronic reader in a Super Market. This was the
First time that any machine had “read” any item with a standardised 11 digit
bar code label.
Since
then Barcodes have become popular and standardised hence Shops and Suppliers
can manage Goods with extra ordinary efficiency. Digital Networks can now read
the Label anywhere on the Globe.
Until
recently there was not even a Standardised system for labelling the different
Legal Entities that are involved in Financial Deals.
Thus,
after the LAYMAN BROTHERS collapsed, the Authorities were started to discover
that the Layman had thousands of different legal entities, all the entities
were making trading and most of which have never been tracked.
Now the questions before authorities
were:
“Does the Financial Market also need a
BARCODE REVOLUTION?”
“Could the similar Revolution now be
started in high Finance?”
“Will LEI be answer to above?”
A
Legal Entity is known by many different Identification numbers at different
Institutions for the transaction it does with anyone in the market, For example
Exchanges and Clearing and Settlement Agencies like NSE, BSE, CCIL and NYSE all
have different Identification Tags for same Entity.
If
a Regulator want to know the following about any Entity:
What
is the Exposure of Entity?
Which
are Associates, Subsidiaries, Subsidiaries of Subsidiaries and Holdings of the
Entity?
What
is the Percentage of Shareholding that Each Entity has in its Chain of related
Entities?
How
much Money is borrowed by the Entity?
Which
type of Borrowing is taken and who is the Financier?
How
much Money is invested and Financed by the Entity?
To
whom Money is financed and Where Money is Invested?
Then
the Regulator will have to approach different Authorities, different Exchanges,
Banks and more, it will face the Problems like different Data in Different
Formats under Different Names. Regulator will have to follow the lengthy
Reconciliation and Consolidation to get what they need.
Legal
Entity Identifier Code is the only answer to it which provide all the
information related to financial transactions to the Regulator about any Entity
at one place at one time in standardised Format.
Due
to high Regulations and Laws in Different Countries, the Entities have to
comply with different regulatory requirements in different Jurisdictions.
LEI
Code is a common thread that runs through Regulations in most jurisdictions /
Countries and will help the Company to comply with the evolving regulatory
environment globally.
“TRANSPARENCY IS THE NEW
MANTRA”
Transparent
Market makes the most efficient and productive allocation. And Transparency is
the foundation of LEI. LEI is a step to contribute the transparency and safety
in the market.
GLOBAL LEI SYSTEM (GLEIS)
In
2011, the Group of Twenty (G20*) called on the Financial Stability Board (FSB)
to provide recommendations for a Global Legal Entity Identifier (LEI) and a
supporting governance structure. This led to the development of the Global LEI
System which, through the issuance of LEIs, now provides unique identification
of legal entities participating in financial transactions across the globe.
In
June 2014, the Global Legal Entity Identifier Foundation (GLEIF), a
not-for-profit organization was created to support the implementation and use
of the LEI. GLEIF services ensure the operational integrity of the Global LEI
System. GLEIF is overseen by the LEI Regulatory Oversight Committee, which is
made up of representatives of public authorities from around the globe. LEI
issuers – also referenced as Local Operating Units (LOUs) – are the
organizations authorized to issue LEIs to legal entities engaging in financial
transactions.
*G20: An international organization consisting of representing 20 major
countries (90 percent of the world's GDP) like seven developed countries(G7),
the chair countries of the European Union, and twelve rising nations
The Global LEI System operates in three
tiers:
1.
LEI Regulatory Oversight Committee (LEI ROC): Represents Public Financial Market Authorities from the
around World.
2.
Global Legal Entity Identifier Foundation (GLEIF): Ensures the operational integrity of the Global LEI
System.
3.
LOCAL OPERATING UNITS (LOU): Issue LEIs to Legal Entities.
WHAT IS LEI CODE?
LEI
Code is a 20 Character International Unique Identity Code assigned to Entities
who are Parties to Financial Transactions. Globally Use of LEI has expanded
beyond derivative reporting and it is being used in area relating to Banking,
Securities Market, Credit Rating, Market Supervision etc. The LEI is a global
standard, designed to be financial data that is freely accessible to all.
The
structure of the global LEI is determined in detail by ISO Standard 17442 and
takes into account Financial Stability Board (FSB) stipulations.
NOTE: LEI IS NOT APPLICABLE ON
INDIVIDUALS
Breakup
of 20 Characters of LEI is as follows:
First Four
Characters (1-4)
|
Fifth & Sixth
Character (5-6)
|
Seventh to
Eighteenth Characters (5-18)
|
Ninteenth to
Twentieth Character (19-20)
|
First 4
Characters are Identification Numbers of LOU (For LEIL it is 3358)
|
These are
reserved Digits -Set to Zeros (00)
|
There 12
Characters are Alphanumeric Random Number set according to transparent and
sound allocation Policies
|
These are
calculated and checked Digits under ISO 17442
|
LEI IN INDIA
LEI
system was introduced for the first time in India by Reserve Bank of India on
June 1, 2017 by notification in which All the Eligible Participants in the OTC
derivatives Markets were covered under LEI System.
Thereafter
on November 2, 2017, all large Corporate Borrowers were brought into the
preview of LEI System.
Recently
on November 29, 2018 by Notification Reserve Bank of India Covered All
Participants in non-derivative markets in LEI System.
WHO ARE COVERED IN LEI SYSTEM IN INDIA?
1. All Eligible
Participants in the OTC Derivatives Markets.
2. Large
Corporate Borrowers.
3. All
eligible Participants in Non-Derivative Markets
LEI FOR PARTICIPANTS OTC DERIVATIVE MARKETS
Reserve Bank of India vide
notification dated June 1, 2017 has decided to implement the LEI system for all
participants in the Over-the-Counter (OTC) markets for Rupee Interest Rate
derivatives, foreign currency derivatives and credit derivatives in India, in a
phased manner. Accordingly, all current and future participants would be
required to obtain the unique LEI code as per time lines given below in table.
Entities without an LEI code would not be eligible to participate in the OTC
derivative markets, after the date specified in table.
TIME LINE
FOR IMPLEMENTATION OF LEI FOR VARIOUS ENTITIES
|
Phase
|
Entities
|
Date by
which the LEI Code is to be obtained
|
Phase I
|
Entities regulated by RBI
/ SEBI / IRDA / PFRDA and Corporates With Net Worth above Rs 10000 million
|
August 1,
2017
|
Phase II
|
Corporates With Net Worth
between Rs 2000 million and Rs 10000 million
|
October 1,
2017
|
Phase III
|
Corporates With Net Worth
between Rs 700 million and Rs 2000 million
|
December 1,
2017
|
Phase IV
|
Corporates With Net Worth
between Rs 700 million and below
|
March 31,
2018
|
LEI FOR LARGE CORPORATE BORROWERS
Reserve Bank of India vide
notification dated November 2, 2017 has decided to implement the LEI system for
all borrowers of banks having *total
fund based and non-fund based exposure of ₹ 5 crore and above, in a phased
manner. Accordingly, it has been decided that the banks shall advise their
existing large corporate borrowers having total exposures of ₹ 50 crore and
above to obtain LEI as per time lines given below in table. Borrowers who do
not obtain LEI as per the time table are not to be granted renewal /
enhancement of credit facilities after the date specified in table. A separate
roadmap for borrowers having exposure between ₹ 5 crore and upto ₹ 50 crore
would be issued in due course.
TIME TABLE
FOR IMPLEMENTATION OF LEI FOR LARGE CORPORATE BORROWERS
|
TOTAL
EXPOSURE TO CORPORATE BORROWERS
|
Date by
which the LEI Code is to be obtained
|
₹ 1000 crore and above
|
March 31,
2018
|
Between ₹ 500 crore and ₹ 1000 crore
|
JUNE 30,
2018
|
Between ₹ 100 crore and ₹ 500 crore
|
March 31,
2019
|
Between ₹ 50 crore and ₹ 100 crore
|
December
31, 2019
|
Between ₹ 5 Crore and ₹ 50 crore
|
Yet to be
notified
|
*TOTAL FUND BASED AND NON-FUND BASED EXPOSURE means credit exposure (fund based and non-fund
based credit limit) and includes but
not limited to loans, cash credit facility, Bank Guarantee, letter of credit, Commercial
Paper/Corporate Bonds outstanding, forex/derivatives exposure limits.
LEI FOR PARTICIPANTS IN
NON-DERIVATIVE MARKETS
Reserve Bank of India vide
notification dated November 29, 2018 has decided that All participants, other
than individuals, undertaking transactions in the markets regulated by RBI
viz., Government securities markets, money markets (markets for any instrument
with a maturity of one year or less) and non-derivative forex markets
(transactions that settle on or before the spot date) shall obtain Legal Entity
Identifier (LEI) codes by the due date indicated in the table given below. Only
those entities that obtain an LEI code on or before the due dates applicable to
them shall be able to undertake transactions in these financial markets after
the due date, either as an issuer or as an investor or as a seller / buyer.
Transactions undertaken on recognized
stock exchanges are outside the
purview of the LEI requirement.
In case of non-derivative forex
transactions, while all Inter-Bank transactions shall be subject to LEI
requirement, Client transactions shall require LEI code for transactions
involving an amount equivalent to or exceeding USD One Million or equivalent thereof in other currencies.
Non-resident entities undertaking
financial transactions in the relevant markets shall also require LEI code.
Such entities that are not legal entities in their country of incorporation
(e.g., funds operated by a non-resident parent/management company that are each
registered as an FPI) shall use the LEI code of the parent/management company.
Entities responsible for executing
transactions, reporting or for depository functions in these markets shall
capture the LEI code of the transacting participants in their systems.
Due Dates
for Implementation of LEI in the Money market, G-sec market and Forex market
|
Phase
|
Net Worth
of Entities
|
Date by
which the LEI Code is to be obtained
|
Phase I
|
Above 10000 million
|
April 30,
2019
|
Phase II
|
Between Rs. 2000 million
and 10000 million
|
August 31,
2019
|
Phase III
|
Up to Rs. 2000 million
|
March 31,
2020
|
NET WORTH means net worth as per the section 2 (57) of the
Companies Act, 2013.
OBTAINING A LEGAL ENTITY IDENTIFIER
(LEI)
The Global Legal Entity Identifier
Foundation (GLEIF) is not directly issuing Legal Entity Identifiers, but
instead it delegates this responsibility to Local Operating Units (LOUs). Entities
can obtain LEI from any of the Local Operating Units (LOUs) accredited by the
Global Legal Entity Identifier Foundation (GLEIF). In India LEI code may be
obtained from Legal Entity Identifier India Ltd, a subsidiary of the Clearing
Corporation of India Limited (CCIL), which has been recognised by the Reserve
Bank of India as issuer of LEI under the Payment and Settlement Systems Act,
2007and which is accredited by the Global Legal Entity Identifier Foundation
(GLEIF) as the Local Operating Unit (LOU) in India for issuance and Management
of LEI.
STEP BY STEP PROCEDURE TO
OBTAIN LEGAL ENTITY IDENTIFIER CODE (LEI)
1. Registration
at LEI is an online process
2. Visit at
LEI Portal and click on Create an Account
3. Fill the
requisite information and click on Submit
4. Email for
Verification will be received on Authorised Person’s Email, Verify the same
before proceeding further.
5. Login to
your account at LEI Portal
6. Click on
Register in the Tab LEI Services
7. Fill the
Application Form and save each page after completing the same. Important
Information required is as follows:
o Legal Name
of Entity
o Industry
Classification
o Type of Entity
o PAN No.
o Other
Registration Authority and ID
o Registered
Address and Headquarters Address
o Detail of
Direct Parent Entity
o Detail of Ultimate
Parent Entity
8. Select the
Mode of Payment and fill the Billing Details and Submit the Application.
9. You will
receive the reference Number of Your Application with Draft Copies of Documents
from LEI Department at your mail ID
10.Complete
the Documents and send the same to LEI Department at following Address:
Legal Entity
Identifier India Limited,
CCIL
Bhawan, Third Floor,
S.K. Bole
Road, Dada (West), Mumbai-400028
11. The LEI
Department will verify the Documents and on proper verification make the
payment as per the payment mode selected.
12.Within 3-5
days of Payment you will receive the LEI Code and that will be valid for 1 year
from date of issuance and will be eligible for renewal thereafter.
DOCUMENTS REQUIRED FOR LEI
REGISTRATION
Requirement of Documents is based
on the Type of Registering Entity so these may be downloaded from the Legal Doc
Download under the Tab Information available at Portal.
Some Common Documents are as
follows:
·
Certificate of Incorporation/Registration Certificate
·
PAN Card proof
·
Undertaking –cum-Indemnity as per the format specified
by LEIL
·
Audited Financial Statements
·
Board Resolution as per the format specified by LEIL
·
Power of Attorney as per the format specified by LEIL
in case of any further delegation by officials mentioned in Board Resolution.
·
Auditor’s Certificate as per the format specified by
LEIL in case of holding company and ultimate parent.
HOW CAN AN OUTSIDER GET
INFORMATION ON LEI
You can find the information of
LEIs on LEIL web portal in Search Screen. Additionally, the websites of the
GLEIF i.e. www.gleif.org also provide information on LEI issued by all LOUs,
Access to LEI information through the public area of this website is free of
charge.
HOW DOES THE LEI SYSTEM BENEFIT
INDUSTRY?
As
the global LEI becomes more widely used, it is expected to cut costs and
improve risk management by individual firms and across the system. These
savings will come primarily from operational efficiencies such as reducing the
volume of transaction failures; lowering data reconciliation, cleaning, and
aggregation costs; and reducing regulatory reporting costs. A global LEI system
will provide long-term benefits to companies by clearly identifying their
counterparties and customers and improving internal risk management.
SCOPE FOR A PROFESSIONAL
A
Professional by expending his/her expertise to entities regarding registration
at LEI, Preparation of Relationship Data and Regular Updates can grab a good
professional Opportunity.
THANKS & REGARDS
CS HITESH JHAMB
9953001339 / 9654080119
