Legal Identity Identifier- A Bar Code for Corporates

Executive Summary

At the time of the 2008 financial crisis, a single identification code unique to each financial institution was unavailable worldwide. It means that each country had different code systems to recognize the counterpart corporation of financial transactions and calculate the total risk amount. This resulted in difficulties in estimating Individual Corporation's amount of the risk exposure, analyzing risks across the market, and resolving the failing financial institutions. This is one of the factors that made it difficult for the early evolution of the financial crisis. There was a need felt as a result to develop a SINGLE UNIQUE CODE as an identifier for legal entities to any financial transactions and to draw down a list of inter related/ inter connected entities across the GLOBE.

1. Background

The global LEI system (GLEIS) has been set up by regulatory authorities [including G20 and the Financial Stability Board (FSB)] to address the global financial crisis. Companies enter into multi financing activities with banks, financial institutions which issue registration numbers as per their recording system. The Corporate Beehives with subsidiaries, Associate companies etc. complicates tracking and compiling various trade/ non trade exposures leading to over / under reporting and leading to risk rating by Regulators. Also different format of reports / updates issued by Registering authorities add to confusion.

2. Necessity of Code

There is a need of transparency which is fast becoming a norm for any entity which is looking Globally to access foreign funds. LEI Code has come to rescue which will help in following way:

1. Consistent and accurate identification of legal entities which are parties to financial transaction
2. Traceability of financial exposures which a Corporate has taken
3. Credit rating, in case any new financial product is launched in market to raise funds
4. To help improve the measuring and monitoring of systemic risk and support more cost-effective compliance with regulatory reporting requirements.

3. What is LEI

The Legal Entity Identifier (LEI) code has been conceived of as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. It helps in labelling an entity with an Identity number which has entered into financing transactions and are registered with multiple agencies having varied registration numbers. For example, company XYZ is registered with BSE, NSE, NYSE etc. are having distinct registration numbers which complicates the tracking of financial deals which XYZ enters into with multiple agencies.

LEI is a unique 20 character alphanumeric code assigned to a legal entity once registered, using standard ISO 17442: 2012 standard and is of following structure:

• Characters 1-4, a four-character prefix assigned by the ROC Secretariat, unique to each LOU (for LEIL- 3358)
• Characters 5-6, 2 reserved characters - 00
• Characters 7-18, 12 characters generated and assigned to an entity by the LOU according to transparent and sound allocation policies
• Characters 19-20, 2 check digits under ISO 17442.

4. LEI in India

The Reserve Bank of India has mandated the implementation of 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. Entities without an LEI code would not be eligible to participate in the OTC derivative markets, after the date specified in the schedule.

The list of entities eligible to apply for LEI codes are Sole Proprietorships, Limited Liability Partnerships, Partnership Firms, Trusts, Private Limited Companies, Public Limited Companies, Government Companies, One Person Company, Insurance Companies, Housing Finance Companies, Non-Banking Finance Companies, Non profit companies, Special Purpose Vehicles - Trusts, Special Purpose Vehicles - Companies, SPV - Partnership Firms, SPV - Co-operative Societies or Multistate Co-operative Societies Mutual Fund, Mutual Funds-Sub Scheme, Alternative Investment Fund (AIF), AIF- Sub Scheme, Nationalised Banks, Scheduled Urban Cooperative Bank, Banking Companies - Others, Stand Alone Primary Dealers, Public Financial Institutions, Unlimited Companies, Cooperative Societies or Multistate Cooperative Societies, Government Organizations, Companies Limited by Guarantee etc. Other entities as may be specified from time to time.

In India, the LEI code may be obtained from Legal Entity Identifier India Ltd. (LEIL), a wholly owned subsidiary of The Clearing Corporation of India Limited (https://www.ccilindialei.co.in), which has been recognised by the Reserve Bank as issuer of LEI under the Payment and Settlement Systems Act, 2007 and is accredited by the GLEIF (Global Legal Entity Identifier Foundation) as the Local Operating Unit (LOU) in India for issuance and management of LEI.

5. How to Register

5.1 Online registration:

Legal entity need to register as user on LEI website https://www.ccilindialei.co.in. The application to be submitted by official authorised for this purpose. He need to select the option 'Create An Account' and fill in the required details. Once created, a confirmation e-mail will be received on registered email id to activate and verify his/her account. The official may then click on the link provided in the e-mail to activate the account. Post successful login, on LEI service tab, the official may register and fill in necessary details.

A duly authorized person:

1. For companies, is the one authorized by the Board Resolution,

2. For Trusts, is the one authorized by the Board of Trustees Resolution,

3. For Societies, is the one authorized by the Resolution of the Committee of Members,

4. For sole proprietorship concerns, is the proprietor himself or a duly authorized person appointed through a power of attorney,

5. For partnership firms and limited liability partnerships, is the partners themselves or an authorized person appointed through a power of attorney

5.2 List of documents:

After creating an account, the official will go to 'Information' Tab and select 'Legal Doc Download'. The list of documents for each legal form is available for download. The legal entity will have to submit the physical documents.

5.3 Submission of Information / Documents

The applicant will submit the online registration form and sends the physical documents. There is no upload of documents on LEIL website. The list is as under and is not limited to:

• 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.

The documents need to be submitted to following address:

Legal Entity Identifier India Limited
CCIL Bhavan, Third Floor,
S. K. Bole Road,
Dadar (West),
Mumbai - 400 028

5.4 Verification and Issue of LEI Number

All LEI requests will be independently validated with the respective registration authorities like MCA, SEBI, NSDL, DICGC etc. LEIL will verify the documents received and the online form and if found correct, will issue LEI number in 3-5 working days. An LEI is valid for one year from the date of issuance/last renewal date. For renewal after one year, the entire record needs to be validated again in order to ensure the actuality and accuracy of the information.

5.5 Payment of Registration Fees

​​​​​​​With effect from June 1, 2018, LEIL has reduced fees as per the following fee structure:

1. For New Registration: Rs.6000 + 1080 (18% GST) = Rs.7,080
2. For Renewal: (Renewal fees are not applicable at the time of new registration.) Rs.3500+ 630 (18% GST) = Rs.4,130

The payment can be made by way of NEFT/ Demand Draft payable at Mumbai. The details of payment mode available at https://www.ccilindia-lei.co.in/Documents/FAQs.pdf..

6. Relationship Data

The LEI reference data on ownership and corporate hierarchies are essential to achieve one of the key objectives of risk aggregation for the global LEI system. The aim is to have sufficient data to construct a map of the financial network and the complex entity groups which participate in it. By providing information on Parent Entities, it would be possible to construct shareholdings and voting control through the financial group. Examples of uses of the financial network are banking supervision (large exposures; data aggregation and risk reporting), securities regulation (aggregation of OTC derivatives data), licensing (banking, insurance and securities sectors), and resolution of failing financial institutions, financial stability, antimony laundering and countering the financing of terrorism.

6.1 Reporting

It is mandatory for Legal Entities (child) to report data along with LEI of Direct and Ultimate Parent (If the LEI is available for the parent) or if the LEI is not available, the basic business card information of the Direct and Ultimate Parent of the entity. These records could be a direct parent relationship record, an ultimate parent relationship record or an exception report. If the Legal Entity declines to report the data on Relationship, the entity has to specify 'opt out' reason for the same which is recorded by the LOU as an Exception. The 'opt out' reason is thus collected as part of the LEI record of the reporting entity.

6.2 Exceptions

a. Natural Persons - There is no Parent according to the definition used, because the entity is controlled by natural persons without any intermediate legal entity meeting the definition of accounting consolidating parent.

b. Non-Consolidating - There is no parent according to the definition used because the entity is controlled by legal entities not subject to preparing consolidated financial statements.

c. No known Person - There is no parent according to the definition used because there is no known person controlling the entity.

6.3 Changes in Relationship data

If the Legal entity merges or retires, LEIL shall update the relationship status of the Legal Entity as 'INACTIVE' and registration status as 'RETIRED'. In case relationship ceases to exist or in case of change of control, the Registration status has to be updated by the Legal Entity as 'RETIRED'. Accordingly, the end date of the Relationship Period has to be updated.

7. Public Access of LEI Information

Access to LEI information through the public area of this website is free of charge. The LEI is a public good and there are no licence fees for using the information. The information of LEI's is available on LEIL web portal in Search Screen. Additionally, the websites of the GLEIF i.e. www.gleif.org/a> also provide information on LEI issued by all LOUs. LEI records managed by other LOU can be found on the website of the respective LOU.

Two files are published by LEIL for each day. One file includes the entire LEI's managed by LEIL ('Full' file), while the other is a "delta" file that is limited to records that have been updated, since the previously published delta file. In addition, LEIL also publishes relationship data, Relationship Record (Full & Delta) and Exception Reporting file (Full File).

8. The World after LEI

• A registered entity will be identified Globally with a unique identification number/span>
• Relationship details accessible to public free of charge
• Regulators will be able to know company profile, exposure to finance and hence will be able to assess risk profile
• Markets will get more accurate, detailed and updated information about interconnected entities
• For registered entities, LEI will improve data flows, internal efficiencies, will lower reconciliation costs, data accessibility across systems, identification of counterparties to financial deals, reduce overall cost of financing.

9. Scope for members

Members may extend their expertise to entities which needs to comply with the requirement of registration, preparing list of relationships, regular updates. This may be one of the emerging professional opportunities for CA's in practice.

The author is a Chartered Accountant with over 20 years of rich and extensive experience in diverse industries such as Engineering, Construction, Renewable Energy and FMCG