LEI Now Mandatory Above 50 Cr of Foreign Transactions

The Legal Entity Identifier (LEI) is a 20-digit number used to uniquely identify parties to financial transactions worldwide to improve the quality and accuracy of financial data systems. LEI has been introduced by the Reserve Bank in a phased manner for participants in the over the counter (OTC) derivative, non-derivative markets, large corporate borrowers and large value transactions in centralised payment systems. {As per RBI/2021-22/137 Circular Dated 10th Dec,2021)

Each LEI contains well structured reference data which is categorized into 2 sections – Level 1 – who is who and Level 2 – who owns whom. Level 1 data includes entity registration details, such as legal name, number of registration, legal and HQ address etc. Level 2 contains information about an entity’s ownership structure and thus answers the question who owns whom. Simply put, the publicly available LEI data pool transfers unstructured entity registration data into standardized global directory, which greatly enhances transparency in the global marketplace

Who Should Obtain

In order to further harness the benefits of LEI, it has been decided that AD Category I banks, with effect from October 1, 2022, shall obtain the LEI number from the resident entities (non-individuals) undertaking capital or current account transactions of ₹50 crore and above (per transaction) under FEMA, 1999.

KEY NOTE –> Hence Any Non Individual whether Company or LLP or Trust Undertaking more than 50 Cr of Foreign Transaction including of Export of Service or Remittance etc. is required to obtain LEI by 1/10/2022. Better obtain even prior.

As regards non-resident counterparts/ overseas entities, in case of non-availability of LEI information, AD Category I banks may process the transactions to avoid disruptions. Further, AD Category I banks may encourage concerned entities to voluntarily furnish LEI while undertaking transactions even before October 1, 2022. Once an entity has obtained an LEI number, it must be reported in all transactions of that entity, irrespective of transaction size.

Any entity that is considered a legal entity is able to apply for an LEI number. LEI codes are required by legal entities carrying out financial transactions or operating within the financial system. In particular, legal entities in the UK, EU, and the US are likely to require an LEI. In many circumstances, a legal entity may be prevented from trading if it does not have an LEI. LEI numbers might be required by regulatory agencies but many companies also ask for an LEI.

There are currently about 100 regulations in place in different jurisdictions, where the use of LEI codes is required.

Some of the legal entity types that might be required to have an LEI include:

• Financial intermediaries
• Banks, investment companies, and lenders
• Trade OTC derivatives (except private individuals)
• Self Managed Superannuation Funds traders and trustees​
• Investment Vehicles, mutual funds, hedge funds
• Pension schemes
• Commodities trading
• CFDs (Contract for Differences)  
• Securities transactions, SFTR reporting​
• Entities listed on a stock exchange

A private individual is neither required, nor allowed to receive an LEI code.

AD Category-I banks shall have the required systems in place to capture the LEI information and ensure that any LEI captured is validated against the global LEI database available on the website of the Global Legal Entity Identifier Foundation (GLEIF).

AD banks may bring the contents of this circular to the notice of their constituents concerned and advise entities who undertake large value transactions (₹50 crore and above) under FEMA, 1999 to obtain LEI in time, if they do not already have one issued.

How to Obtain LEI

5. Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the GLEIF, the body tasked to support the implementation and use of LEI. In India, LEI can be obtained from Legal Entity Identifier India Ltd. (LEIL) (https://www.ccilindia-lei.co.in), which is also recognised as an issuer of LEI by the Reserve Bank under the Payment and Settlement Systems Act, 2007. The rules, procedures and documentation requirements may be ascertained from LEIL.

How LEI Will Help in Preventing Corporate Frauds

Legal entity identifier will help banks and credit providers in monitoring the exposure of corporate borrowers. It will prevent banks from issuing multiple loans against the same collateral.