Why Legal Entity Identifiers should be on your agenda 

Simon Wood, CEO, Ubisecure

Trusted organisation identity lies at the core of all supply chain and trade processes. Partners must be able to efficiently track and verify the ownership, location and funding of products and services. New vendors need to be able to assert their identity to partners and trade ecosystems to gain trust and participate.

Without trusted identity, tracking and verifying the multiple (often global) parties involved in trade becomes cumbersome and disjointed. This can lead to considerable risk, including fraud, conflicts of interest, and corruption. Herein lies significant opportunity for enhanced efficiency and security. Enter the LEI. 

The Legal Entity Identifier – a globally standardised 20-digit alphanumeric code assigned to a unique legal entity – is a critical component for managing risk in transactions, particularly as the markets prepare to go digital. 

The Legal Entity Identifier (LEI) is critical for organisations across different industries. Not only are over 300 regulations requiring or recommending the use of LEIs, but corporates also adopt them for the numerous benefits they bring to supply chain management and global trade.

The LEI enables paperless trade and removes obstacles to trading and transaction tracking across borders. Unlocking this level of efficiency has substantial cost saving benefits as manual processes are eliminated.

As the level of trust increases, so too does inclusion of all sizes and location of organisation – levelling the global business playing field. Organisations offering transparency through an LEI can stand out in a crowded market.

Let’s look at the key benefits for organisations in more detail:

Efficiency: LEIs increase efficiency in supply chains and reduce costs of cross-border payments by streamlining Customer Due Diligence (CDD) processes and reducing costs associated with manual data entry and verification. Without LEIs, organisations are usually forced to assign highly skilled, expensive personnel resources on cleaning entity data and manually conducted client due diligence.

Compliance: Many regulatory bodies require organisations to have an LEI to participate in regulated financial transactions. LEIs are key to ensuring compliance with regulatory requirements, such as Know Your Customer (KYC), Know Your Supplier, and Anti-Money Laundering (AML) regulations. 

Risk Management: LEIs help manage risk in supply chains by providing transparency and visibility into the ownership structure of organisations. Potential risks, including conflicts of interest, fraud such as vendor impersonation, or corruption, can be better identified. The LEI is standardised, following a globally implemented data structure, meaning that LEIs can also help reduce the risk of errors and inconsistencies in data entry.

Transparency & Inclusion: LEIs increase transparency in supply chains by providing a unique identifier for each entity involved in a transaction. This helps ensure that all parties have access to accurate and up-to-date information about the entities they are doing business with. By providing transparency, LEIs promote financial inclusion by helping build trust among partners and suppliers, even with banks and lenders, creating a level playing field for smaller or non-domestic companies to compete. Organisations that commit to obtaining and maintaining an LEI demonstrate credibility within a crowded market.

Standardisation: For years, organisations have needed to deal with different regional, vertical and proprietary organisation identifiers. LEIs provide an interoperable, standardised, globally implemented, way to identify legal entities across different jurisdictions and industries. This makes it easier to compare and analyse data across different organisations and sectors. By promoting standardisation, LEIs can help reduce the risk of errors and inconsistencies in data entry. 

Sustainability: The LEI supports sustainability initiatives by providing a way to track environmental, social, and governance (ESG) data across the supply chain. This can help organisations identify areas for improvement and make more informed decisions about their supply chain practices.

Data Quality: LEIs improve the quality of legal entity identification and reference data in supply chains by reducing errors and inconsistencies in data entry. This can help organisations make more informed decisions and improve the accuracy of their reporting.

As of April 2023, over 2.3 million organisations around the world have registered an LEI. It’s a good start but we need more. The average cost of an LEI has fallen to around Euro 60, even less in volume. The automation developed by Ubisecure has reduced issuance time to just minutes, making LEIs more accessible than ever before. 

As more organisations obtain an LEI, the LEI ecosystem can reach critical mass, promoting the efficient exchange of identity data between entities. This, in turn, can lead to improved risk management, increased transparency, and lower transaction costs. Ultimately, obtaining an LEI can benefit not just the organisation itself but also the entire financial or supply community that participates in the ecosystem.

Obtaining your own LEI and encouraging the use of LEIs with your partners is the first step to access the global LEI ecosystem and empower global trade to operate transparently and efficiently. As we reach critical mass with adoption, LEIs will transform the way trusted global business is conducted. LEIs are having positive impact now, and using them should be on every organisation’s agenda.