The International Organization for Standardization (ISO), prompted by the 2008 global economic crisis, developed the ISO 17442 standard, which specifies the Legal Entity Identifier (LEI), a 20-character alphanumeric code. Financial LEIs were established to help address the climate crisis.
After the 2008 financial crisis, the deeply complex nature of some financial products, bodies, and mechanisms was recognized as a contributing factor.
A set of rules across countries and financial centers made it difficult to identify all legal entities or businesses involved in financial transactions, so the LEI was created. It minimized fraud and market abuse and made it simple to calculate financial risk.
The LEI contains information about the entity, such as its name and ownership. Any LEI can be checked through a free public database from the Global LEI Index.
The use of the LEI also means better quality and more accurate financial data, putting authorities in a much better position to assess risk, identify trends and take corrective action.
Studies have also shown that the LEI could save the international banking sector up to $4 billion, thanks to improved efficiency.
The LEI is “verifiable” via (vLEI), which is a new digital counterpart to the LEI, which allows identity to be verified fully automatically, saving time and reducing potential errors.
It is not only the financial sector that will benefit from the increased use of LEIs, but also other economic sectors. They have been identified as a key tool in building sustainable economies of the future, which will rely on clear and accurate data to address climate-related threats and embrace opportunities.
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