A technology that could potentially save the banking sector $2-4 billion annually in client-on-boarding costs.
LEI is a technology that could potentially save the banking sector $2-4 billion annually in client-on-boarding costs.
It was not until the global financial crisis in 2007-2009 that leaders from the world’s largest economies finally prioritised the need to develop what is now the global Legal Entity Identity – LEI system. In 2012, the Financial Stability Board (FSB) issued recommendations for developing LEI whose core focus to assess the risk levels and exposure by identifying who is who, who owns whom and who owns what.
[adrotate banner=”10″]LEI is a unique, 20-character alphanumeric code based on the ISO 17442 standard, which is assigned to legal entities that are counterparties to financial transactions. The LEI links back to a data set of critical information about the transacting entity, including ultimate entity ownership. LEI applies worldwide and ensures more transparency in the capital markets.
Research done by Mckinsey on behalf of the Global Legal Entity Identifier Foundation (GLEIF), reports that the adoption of Legal Entity Identifiers (LEIs) could save the global banking sector $2-4 billion annually in client-on-boarding costs. This constitutes a saving of between 5 percent and 10 percent of the industry’s $40 billion annual overall spend on the practice.
Client on-boarding is just one banking business activity of many where the LEI has the potential to generate efficiencies. As such, that figure is just the beginning. GLEIF has consequently identified banking as the key global sector, among many which rely on counterparty identification and verification, in which scaling adoption of the LEI could create substantial and quantifiable value in the near to mid-term.
Taking client lifecycle management (CLM) as a one-use case, LEIs can dramatically simplify entity identification across different lifecycle stages, such as on-boarding, transacting, compliance reporting, and risk monitoring. The use of LEI in bank management can help reduce time-to-revenue, improved customer retention, and delivery of a better, more efficient customer experience.
Financial market participants around the world need a LEI (Legal Entity Identifier) to fulfil regulatory reporting requirements. Currently, there are a variety of proprietary methods used for legal entity identification, but no standardized solution.
Why adopt LEI in the banking industry?
The use of LEI enhances operational efficiencies, cost-saving, reduction transaction time with clients, and offers more reliable information as opposed to the use of a manual component. LEI offers businesses a one-stop approach to identifying legal entities, which has the potential to take the complexity out of business transactions. It also reduces the time involved in the identification of transaction counterparties. Besides, background information of a legal entity is more accessible and traceable while transparency and visibility for and on organizations participating in global transactions are enhanced.
Other sectors that need LEI
- Registered companies including registered subsidiaries
- Funds/trusts.
- Non-profit/charity organizations.
- Government bodies and organizations
- Sole proprietors (individuals that appear in their local register).
- Branch offices (the main HQ entity must already have LEI).
Does East Africa’s GS1 provide the LEI service?Yes. GS1 Kenya has recently been accredited as a Local Registration Agent for issuance of the Legal Entity Identifier (LEI).
The GS1 Global LEI service is a value-added service programme offered by GS1 Global Office, designed to enable all member organisations act as registration agents and offer LEIs to their members and non–members. GS1 East Africa entities offer the LEIs to members and non-members in the East Africa region. Because of the regulation of the financial markets, it is expected that the use of the LEI is assumed by many authorities and institutions worldwide.