Heather Fritzinger explains how regulators and banks use global Legal Entity Identifier (LEI) codes to designate participants in a financial transaction, as well as how one can register an entity with an LEI issuer.
Legal Entity Identifier (LEI)
What is it? A requirement to obtain, maintain, and report a Legal Entity Identifier for all swaps. An LEI is a 20 digit alphanumeric identification code that is unique to a single legal entity. This code is used in conjunction with the reporting of swaps to Swap Data Repositories (SDR) and must be obtained from an approved issuer. Why is it required? The objective behind the LEI requirement is reducing systemic risk in swaps markets through greater transparency and better quality data. Without a globally applied, standardized system for identifying which legal entities are party to trades, regulators would be handicapped in their efforts to generate a consistent, integrated view of existing swap exposures. This data is crucial to assessing, monitoring and regulating risk in the swaps market. The LEI, while not yet fully matured in all jurisdictions, is the mechanism for providing this capability.
Who does it apply to? The requirement to obtain an LEI applies to each counterparty to a swap subject to the jurisdiction of the CFTC (US), ESMA (EU), HKMA (Hong Kong), CSA (Canda), and Australia, with other jurisdictions to follow. The requirement applies to individual legal entities and cannot be satisfied on a consolidated or parent –level basis where the relevant entity is part of a larger legal structure.
How can I comply? Each legal entity that enters into a swap must obtain an LEI from an endorsed Local Operating Unit (LOU), or until such time as an LOU exists, from a Pre-LOU. Information on Pre-LOUs can be found here. Substitute counterparty identifiers issued by SDRs before the establishment of LEIs will be eligible for continued use after such system is established. The cost to obtain an LEI is $220 per entity, and each LEI must be maintained on an annual basis for a cost of $120. The registration process will require that certain basic entity information is provided such as the legal entity’s name, registered address, and status. The registration itself takes about five minutes and the average turnaround time to receive the LEI is 2-3 business days, something to keep in mind when trading for the first time with a given legal entity.
How can Chatham help? Chatham Financial can provide resources that will assist in the LEI registration process including: - A step-by-step guide for obtaining LEIs from the GMEI Utility - Pricing information for LEI issuers in other jurisdictions - Ability to answer questions during the registration and renewal processes - Warehousing of LEIs in Chatham’s system