What is the importance of Legal Entity Identifier (LEI)

The Legal Entity Identifier (LEI) is an important global identifier that uniquely identifies legal entities involved in financial transactions. The following are some of the key reasons why LEIs are important:

1. Improved Transparency: The use of LEIs can improve transparency in financial markets by providing a standardized and unique identifier for each legal entity. This helps to reduce the risk of errors and fraud, and enables regulators, investors, and other stakeholders to more easily identify and track entities involved in financial transactions.

2. Enhanced Risk Management: LEIs can help financial institutions and regulators to more accurately assess and manage risk by identifying interconnectedness among legal entities. With the use of LEIs, it becomes easier to monitor the exposure of financial institutions to various entities and assess systemic risk.

3. Regulatory Compliance: Many regulatory authorities around the world require the use of LEIs for regulatory reporting and risk management purposes. Compliance with these regulations is important for financial institutions to avoid fines and other regulatory actions.

4. Improved Data Quality: LEIs can help to improve the quality of data used in financial transactions by providing a standardized and consistent way of identifying legal entities. This can help to reduce errors and improve the accuracy of reporting and risk management activities.

5. Simplified Business Processes: The use of LEIs can simplify business processes, such as onboarding of new clients or counterparties. With the use of LEIs, it becomes easier to verify the identity of legal entities and to streamline the process of collecting and validating customer information.

In summary, LEIs are important because they enable improved transparency, enhanced risk management, regulatory compliance, improved data quality, and simplified business processes in financial markets.