Why Legal Entity Identifier (LEI) is required as per RBI?

The Reserve Bank of India (RBI) has made it mandatory for entities such as banks, non-banking financial companies (NBFCs), and other financial market participants to obtain an LEI. This requirement is in line with the global regulatory norms aimed at improving transparency and systemic risk management in financial markets.

The LEI is a 20-character unique identification code that identifies legal entities participating in financial transactions. It is a standardized code that is used globally and can be used to uniquely identify the legal entity, its ownership structure, and its connections with other legal entities. The LEI provides a standardized method for identifying legal entities involved in financial transactions, thereby reducing the risk of errors and fraud in the financial system.

By requiring entities to obtain an LEI, the RBI is aiming to improve transparency and mitigate risk in financial markets. The LEI can be used to monitor and track the exposure of financial institutions to various entities and assess systemic risk. This helps to improve the overall stability of the financial system, as it allows regulators to identify and respond to potential issues more quickly and effectively.