Knowing who is who and who owns whom is fundamental to transparency and security in financial transactions. The legal entity identifier (LEI) enables such transparency and gives rise to the publicly available global directory of financial market participants. It exists thanks to ISO standards that have just been updated to be even more fit for the financial future.
We all remember the global financial crisis of 2008, which highlighted the challenge of identifying and tracing transactions across the international financial system. Having a unique and unambiguous way of identifying legal entities can resolve this dilemma by allowing global regulators to gather information about them from many sources.
To this end, the G20, the forum for international economic cooperation, instigated the creation of the legal entity identifier, or LEI. A unique 20-character code, it connects to important information about the entity involved in the transaction, including ownership structure. The method for creating such codes is defined in an ISO standard, ISO 17442, and it has just been updated. Originally published as a stand-alone document, the standard now comes in two parts to give more information, greater clarity and ensure it continues to meet industry needs.
ISO 17442-1, Financial services – Legal entity identifier (LEI) – Part 1: Assignment, specifies the minimum elements of a legal entity identifier scheme that is clear and unambiguous, capable of identifying the legal entities relevant to any financial transaction. These include banks, finance companies, any organization that issues securities, anyone listed on the stock exchange, pension funds and more. ISO 17442-2, Financial services – Legal entity identifier (LEI) – Part 2: Application in digital certificates, complements this first part by specifying how to embed the LEI in digital certificates.
David Broadway, Convenor of the working group of experts that developed the standards, said they were revised to enhance clarity and reflect the changing policies and lessons learned since they were first published.
“Since ISO 17442 was first implemented, the policy thinking of the regulator community has evolved, so it is important that the standard reflects that,” he said.
“Improvements include additional features and revisions related to the eligibility of international branches of entities, additions to the LEI data record related to parent companies and the status of the entity, greater clarity on existing attributes, and more.”
ISO 17442-1 and ISO 17442-2 were developed by working group WG 4, which operates under technical committee ISO/TC 68, Financial services, subcommittee SC 8, Reference data for financial services, whose secretariat is held by SNV, ISO’s member for Switzerland. They can be purchased from your national ISO member or the ISO Store.