July 5, 2021

When does a start-up need a Legal Entity Identifier?

Legal Entity Identifier (LEI) is a system brought out to streamline financial transactions and reduce risk across the globe. Read on to know more about LEI.

 

Background

Globalization has brought out progression in finance and technology. The disruption of technology in business transactions has created more room for financial frauds. To address this, regulatory authorities across the world have created a harmonized global reference system for transactions. This system is known as the Legal Entity Identifier (the “LEI”).

LEI is a 20-digit code based on the international standards of ISO (International Standard of Organization) 17442:2012. 

This code is designed for increasing transparency across financial transactions in order to reduce risk. LEI was introduced in 2017 by the Reserve Bank of India (RBI).

Applicability of LEI

The RBI introduced LEI for specific transactions in a phased manner. Initially, this system was applicable to over-the-counter derivative markets. However, this system was extended to the following transactions:

  • Any entity engaged in trading in over the counter and international derivatives markets, trading in any foreign currency markets and credit derivative markets in India.
  • All payment transactions that exceed INR 50 Crore and above and such transaction is carried out through RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer). The RTGS/NEFT transaction can happen in a single tranche or aggregate during the year.
  • Entities that enjoy the exposure of INR 5 Crore or more from banks and financial institutions will be required to obtain an LEI code.

Which entities are required to register as an LEI?

LEI registration will depend on the transaction amount of a particular entity. For small transactions, this registration is not required. However, if the transaction exceeds the above criteria, then an entity would be required to register for an LEI.

The following entities will require registering as an LEI if they qualify for the minimum value:

  • Private limited companies;
  • One person companies (OPC);
  • Non-banking financial companies (NBFCs);
  • Limited liability partnerships (LLPs);
  • Alternative investment funds (AIF);
  • AIF Sub Fund;
  • Pension fund sub-schemes;
  • Co-operative societies;
  • Non-profit companies; and
  • Special purpose vehicles.

How to make an LEI application?

An application for LEI can be made through accredited agencies nominated by the RBI. The following are the accredited agencies for an LEI:

  • India LEI
  • LEI Register
  • Leikart India
  • Legal Entity Identifier India Limited

In case LEI is not taken by the applicant, future transactions and trading will not be allowed.

Validity of LEI

LEI code will be valid for a period of 1 year. There is an option to renew LEI every year.

Summary

The system of LEI code was brought out to increase transparency across financial transactions in the world. For now, the applicability of securing an LEI code is for entities which fulfil the above eligibility.

For any further queries on LEI, please get in touch with one of our experts.

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