For the market regulators, for the first time since the 2008 financial crisis, LEI offers a global system to identify legal entities. The LEI system’s structure and implementation is a direct response to the high-level requests made at the G20 forum, materialized by the Financial Stability Board and other financial market authorities’ recommendations. These requests have their roots in the realization that without any global identification system for the counterparties of financial transactions, we run the danger of a crisis at a much greater scale than that of 2008.
On the other hand, for the companies in financial markets, the primary benefit of the LEI system comes from its KYC (know your customer) applications. The ability to identify and aggregate all the existing and potential clients inside corporate systems that bring big benefits to corporations, banks, and investment companies. For example, a recent collaborative analysis by the Global LEI Foundation and McKinsey & Company identified huge possible reductions in costs related to new client onboarding processes, and the improved processing of stocks, bonds, and other securities trade
The key benefits of the Lei system correspond to the fundamental attributes of the system:
Uniqueness and Singularity – the LEI system architecture assumes that only one legal entity identifier can be assigned to a legal entity. It also assumes that LEIs cannot be reused.
Persistence – The LEI system is immune to any changes that occur in the lifetime of an entity. Even if a given entity is dissolved through a sure merger, or completely subsumed by another entity, its original identifier shall remain operational, thereby allowing the retrieval of reference data corresponding to the time of the entity’s activity. The LEI system shall also be technically persistent and resilient. We discuss this attribute further in the chapter “Blockchain for LEI system”.
Neutrality – The LEI identifiers are 100% neutral – at their core, they form a single data field and hold no embedded intelligence, meaning that an identifier value cannot be used to compromise its neutrality.
Reliability – The LEI system is supported by a trusted method of verifying the identity of the legal entity in question. This is guaranteed by the issuer’s (LOUs) maintenance of all respective reference and identification data. Moreover, this data is sufficient for verifying the authenticity of an entity’s revealed identification. The system’s reliability is also supported by clear-cut, high-quality assurance criteria guaranteed by the issuers. We extend our discussion of this attribute in the chapter “Blockchain for the LEI system”.
Openness and public availability – The LEI system is built as a completely open, non-proprietary public good. Unlike systems such as the DUNS, its fundamental data for all registered entities is available free of charge.
Extensibility – The LEI system is destined to become the global standard for the unique identification of legal entities across the global financial sector and beyond. To achieve this goal, it must remain open to potential future extensions related to both new forms of legal entities, as well as the elements of the reference data concerning those entities. Our system has already prepared for this and as such already allows for possible extensions, made possible through the use of semantic technologies.