The legal entity identifier is basically a system through which all the legal entities are companies that are participating in financial transactions can be recognised in a broader perspective. This legal entity identifier consists of informations that help in the establishment the ownership structure and therefore it answers all the basic questions of Who is Who and who owns which company, or which system.
In simpler words this is a recording of public transactions that are available in money and goods transactions and which helps the Global dictionary to note down all the transactions that take place in a financial market.
Development and Algorithm of LEI
The LEI system was developed in the year of 2011, G20 as it became evident on the part of the Financial Institutions, the impossible equation to identify each organisations uniquely and therefore keeping track of definite transaction became an impossible task.
Hence the unique algorithm of 20 character alphanumeric string, with the front four characters that identify the local operating unit was introduced. The characters from 5 – 18 are unique alphanumeric strings that assign to the local operating unit’s operation. The lasttwo characters are checksum digits making the whole operation uniquely complex and trustworthy.
Controllers of LEI; Global Operating System:
- G20:
This International Organisation consists of 20 major countries controlling 90% of world GDP and the top 7 developed countries, the G7, the countries of the European Union and the 12 important rising Nations.
- Financial Stability Board:
The financial stability board is an organisation that was found to enhance the capability and the stability of the global financial system in order to oversee the international Finance.
- Regulatory Oversight Committee:
The regulatory oversight committee is the best decision making organisation of legal entity identifier system under FSB. All the 40 country’s financial authorities and the central banks and IMF are all represented as the members by the international organisations.
- GLEIF:
Popularly known as the Global LFI Foundation are responsible for controlling the LOUs in all the regions as acting and practical operating systems within the Legal Entity Identifier.
- Local Operating Units:
The local operating units are basically the organisation for operating and issuing and in maintaining the code of a Legal Entity Identifier in every region. In the United States and in Europe the parties related to the transactions have to use the LEI in order to report the supervisor authorities’ out of book derivative transactions.
