Introduction of Legal Entity Identifier (LEI) for Cross-border Transactions

The Reserve Bank of India “RBI” vide its Circular No. 20/RBI/2021-22/137 dated 10.12.2021 introduces a Legal Entity Identifier System for all the payments transactions amounting of INR 50 Crores or more through NEFT (National Electronic Funds Transfer) and RTGS (Real Time Gross Settlement) in centralized payment systems.

What is LEI?

• An LEI (Legal Entity Identifier) is a unique identification number issued to companies that operate within global financial system.
• It is a 20-character global reference number conceived by G20 that uniquely identifies every legal entity or structure that is party to a financial transaction in any jurisdiction (local or global).
• Internationally LEI is implemented and maintained by Global Legal Identifier Foundation. In India entities can obtain LEI from Legal Entity Identifier India Ltd. (LEIL), (only LOU of India, which is a subsidiary of The Clearing Corporation of India Ltd, recognized by RBI under Payment and Settlement System Act, 2007.
• An LEI once issued is valid for one year and companies need to renew their LEI every 12 months.

Legal Status of LEI in India:

LEI has been introduced by RBI in phased manner as follows:

• Mandatory application for participants in the over the counter (OTC) derivative, non-derivative markets, large corporate borrowers.
• Voluntarily application for resident entities (non-individuals) undertaking capital or current account transactions and above (per transaction) under FEMA 1999 till 1st October 2022.

Objective regarding Implementation of LEI Structure:

• Improve the quality and accuracy of Financial Data in the banking systems.
• It will help the regulator i.e., RBI to track and global transactions and check for instances of money laundering.
• As per the LEI Structure, banks will now report debt details along with LEI to Central Repository of Information on Large Credit. It will help the banks to monitor debt exposure of corporate borrowers and will also prevent multiple loans against the same collateral, thus helping reduce NPAs.

Syed Aman, Audit Associate, SW India