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When do you need a Legal Entity Identifier?

The need for a Legal Entity Identifier is high when you are doing business with financial institutions. Many of them have started requesting this number so that they can confirm identities in credit or counterparty risk analysis. You also might be required to get one if you plan on sending and receiving electronic messages in the course of your business.

Some jurisdictions require Legal Entity Identifiers to maintain their lists of regulated entities, such as financial institutions and insurance companies. This is because it helps them to monitor risks in the economy and ensure that these risks stay within predefined limits. By having a unique identifier for each legal entity, it is easier to monitor their activities.

A Legal Entity Identifier (LEI) is assigned to all participants in an over-the-counter financial transaction and  LEI code registration and renewal is regarded as mandatory as per the global derivatives industry to standardize financial transactions, reduce credit risk through increased transparency, and make it easier for regulators to monitor OTC derivatives markets. Initially developed for the OTC derivatives market, the LEI was soon expanded to include other financial institutions.

The size of your company

The size of a company is one of the main factors that determine whether it needs an LEI code or not. Generally, businesses with more than 250 employees are required to have an LEI code, but exceptions are depending on the country. For example, in the US, businesses with more than 200 employees need an LEI code.

The scope of your company’s activities

The scope of the entire company is another factor that determines whether it needs an LEI code or not. In general, if your business interacts directly with European banks or companies selling to banks, insurance companies, and other financial institutions then you need an LEI code. You also need an LEI code if you plan to create financial products, manage financial portfolios, or provide insurance services.

The nature and expected transnationality of your business activities

Finally, the nature and expected transnationality of your activities is another factor that determines whether you need an LEI code or not. It’s important to note that the LEI code is not just for European businesses, but all businesses around the world. If you plan to do business with companies in other countries, then you will need an LEI code.

 The number of entities involved in your transactions

Another factor that determines whether you need an LEI code or not is the number of entities involved in your transactions. Generally, if you have more than 20 entities involved in a transaction, then you need an LEI code.

The complexity of your transactions

The complexity of your transactions is the last factor that determines whether you need an LEI code or not. If your transactions are complex and include a large number of entities, then you will likely need an LEI code. However, if your transactions are simple and don’t involve many entities, then you may not need one.

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