Financial Stability Board supports global LEI use
Monday, August 08, 2022 — 07:40:00 (EDT)
Basel, Switzerland -- 8 August 2022 -- The Financial Stability Board (FSB) has put its full weight behind a landmark recommendation that the LEI should be widely adopted across the global payments ecosystem. In July 2022, the FSB published a report encouraging global standards-setting bodies and international organizations with authority in the financial, banking, and payments space to drive forward LEI references in their work. The report also recommends guidance and further outreach on the use of the LEI as a standardized identifier for sanctions lists and as the primary means of identification for legal entity customers or beneficiaries, with specific reference to customer due diligence and wire transfers.
A primary near-term goal of the FSB’s most recent report, published as part of the G20 Roadmap for Enhancing Cross-Border Payments, is to stimulate LEI to use initially in cross-border payment transactions. By helping to make these transactions faster, cheaper, more transparent, and more inclusive, while maintaining their safety and security, the LEI has been deemed by the FSB to support the goals of the G20 roadmap.
As a result, banks and financial institutions will now be compelled to move quickly to incorporate the LEI as an integral component of their cross-border payments infrastructure, since there are huge benefits in doing so. In addition to supporting lower costs and enhanced transaction speed and transparency, the LEI can also facilitate straight-through processing (STP) and sanctions screening, while easing compliance with Know-Your-Customer (KYC) due diligence.
Additionally, the report recommends that standards bodies (e.g., BCBS, CPMI, IOSCO, FATF) and international organizations (IMF, OECD, World Bank) should consider how the LEI may be used as a standardized identifier for sanctions lists or as the primary means of identification of legal entity customers or beneficiaries. This demonstrates the broader ecosystem needed to support cross-border payments evolution – an ecosystem based on a single global identifier for legal entities that can be used to facilitate compliance checks across various resources.
With this in mind, banks and financial institutions who may soon need to ensure their legal entity clients possess an LEI to engage in certain payment transactions, cross-border or other, should feel motivated to leverage the benefits of becoming a Validation Agent within the Global LEI System. The advantages are two-fold: enhanced customer service, through a simpler, faster, and more convenient LEI issuance process for customers; and huge efficiencies in client onboarding and lifecycle management for the bank or financial institution. It really is a win-win scenario.
The wider impact of LEI adoption in cross-border payments
While the FSB’s report is intended to promote LEI use in cross-border transactions, both the strength and far-reaching scope of its recommendations are likely to be a catalyst for the LEI to be more broadly implemented across many other payment scenarios too. After all, if banks and financial institutions need to equip customers with an LEI to participate in cross-border transactions, then it’s a logical next step for participants in the payments ecosystem to leverage and optimize those LEIs to drive efficiencies across their other payment operations, and to bring enhanced transparency and trust benefits for customers.
There is already a healthy pipeline of active consultations and commitments by financial regulators aimed at recommending or mandating LEI use more broadly within the global payments space.Last year, the European Commission (EC) officially recognized the value of the LEI as a unique mechanism capable of supporting transparency in AML and countering the financing of terrorism (CFT) efforts. It issued two legislative proposals that call for the LEI to be used in certain customer identification and verification scenarios where available.
The EC also launched a separate initiative last year to identify obstacles to the creation of efficient pan-European instant payments solutions. As part of its consultation strategy, the EC issued a survey for the purpose of exploring the potential for the LEI to support the screening of instant payment transactions against sanction and watch lists.
The Bank of England (BoE) affirmed its position to support wider uptake of the LEI and will introduce the LEI into ISO 20022 standard for CHAPS payment messages on an ‘optional to send’ basis in February 2023. While the BoE encourages all CHAPS Direct Participants to start using LEIs as early as possible, it will not become mandatory until spring 2024, at which time the BoE will begin mandating LEIs to be used in certain circumstances, with a vision to widen out the requirement to all participants over time. In particular, the BoE will mandate the use of the LEI where the payment involves a transfer of funds between financial institutions. The BoE will also monitor the use of the LEI for all transactions, with a view to assessing whether the mandatory requirement to include LEI data should be extended to all CHAPS payments.
In order to further the use of LEI in cross-border transactions and facilitate cross-border trade and investment, the Chinese Cross-border Interbank Payment System (CIPS) designed an innovative product “CIPS Connector”, which provides an integrated “one-step” service for a variety of cross-border RMB transactions between banks and enterprises. Every CIPS Connector user is assigned with an LEI, which is used for activating the tool as well as a mandatory business element in their business transaction.
In January 2021, and in a move that was the first of its kind, the Reserve Bank of India issued a mandate for the LEI in all payment transactions totaling ₹ 50 crore and more undertaken by entities for Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT).
Why the LEI in payments?
The LEI is considered an important tool in payments as it is designed for identifying unique parties to each transaction. It meets a fundamental requirement in payment processing – precise identification of the payer and payee. No other current identifier in payments offers this. International Bank Account Numbers (IBANs) for example are used for uniquely identifying payer/payee accounts, while Business Identifier Codes (BICs) are used for routing the payments to the relevant divisions/sub-divisions of financial institutions.
Today’s highly digitized payment networks require faster, cheaper, and more secure transactions. When the LEI is added as a data attribute in the payment messages, any originator or beneficiary legal entity can be instantly and automatically identified.
Become a Validation Agent
When viewed collectively, these developments show that LEI advocacy has never been stronger in the payments space. This signals that the LEI could be the widely implemented trust tool of choice for payments in the near future. With that in mind, GLEIF urges banks, and financial institutions to consider taking a proactive approach to supporting voluntary customer adoption of the LEI and getting ahead of recommendations or mandates in the payments space.
Becoming a Validation Agent in the Global LEI System is now the obvious choice. In addition to easing the process of LEI implementation further down the line by making LEI issuance more convenient and accessible for customers, becoming a Validation Agent can deliver some significant advantages for financial institutions themselves. By utilizing ‘business-as-usual’ onboarding processes to obtain LEIs for clients, financial institutions can improve customer experience, facilitate digital transformation, and reduce client lifecycle management costs.
Find out more about becoming a Validation Agent on the GLEIF website.
Full resolution images and logos can be downloaded via this linkwww.gleif.org/en/newsroom/gleif-graphics-images
Glossary of terms
Legal Entity Identifier (LEI)
The Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). The LEI connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure, answering the questions of 'who is who’ and ‘who owns whom’. It provides a universally recognized identifier paired with essential entity data, rigorous verification processes and high data quality.
Verifiable LEI (vLEI)
The vLEI concept is simple: It is the cryptographic secure digital counterpart of a conventional LEI. In other words, it is a digitally trustworthy version of the 20-digit LEI code which is automatically verified, without the need for human intervention. It gives government organizations, companies, and other legal entities worldwide the capacity to use non-repudiable identification data pertaining to their legal status, ownership structure and authorized representatives in any kind of digital interaction, transaction, or e-signature scenario.
About the Global Legal Entity Identifier Foundation (GLEIF)
Established by the Financial Stability Board in June 2014, the Global Legal Entity Identifier Foundation (GLEIF) is a not-for-profit organization created to support the implementation and use of the Legal Entity Identifier (LEI) and its digital counterpart the verifiable LEI (vLEI). GLEIF is headquartered in Basel, Switzerland.
GLEIF’s mission is to manage a network of global partners to provide trusted services and open, reliable data for unique legal entity identification worldwide. GLEIF makes available the technical infrastructure to provide, via an open data license, online access to the full global LEI database free of charge to users. GLEIF is overseen by the Regulatory Oversight Committee, which is made up of representatives of public authorities from across the globe.
Diversity and inclusion underpin GLEIF’s values. This is reflected in its workforce of approximately 60 staff from over 20 nations, its operational excellence, and its commitment to open, global participation in the Global LEI System.
For more information, visit the GLEIF website at www.gleif.org/en.
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information: bankcardlife.com?orid=33533&opid=1 .
Source: Company press release.
The FSB promotes global financial stability by coordinating the development of regulatory, supervisory and other financial sector policies and conducts outreach to non-member countries. It achieves cooperation and consistency through a three-stage process.
The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009 as a successor to the Financial Stability Forum (FSF).
- Klaas Knot. Chair of the FSB. President, De Nederlandsche Bank. Argentina. Eduardo Setti. Secretary of Finance. Ministry of Finance. ...
- Italy. Alessandro Rivera. Director General. Ministry of the Economy and Finance. Ignazio Visco. Governor. ...
- UK. Andrew Bailey. Governor. Bank of England. Tom Scholar. Permanent Secretary.