Updated 05.01.2021:
LEI is a 20-digit unique code to identify parties to financial transactions worldwide. Following the global financial crisis, the Legal Entity Identifier (LEI) code is conceived at the initiative of the ‘Group of 20, financial stability Board’. In the US and Europe, the regulations require the use of LEIs to uniquely identify counterparties to transactions in regulatory reporting.
The LEI will serve as a proof of identity for a financial entity, help to abide by regulatory requirements, and facilitate transaction reporting to Trade Repositories. The Public authorities in their jurisdictions rely on the LEI to evaluate risk, take corrective steps and, if required, minimize market abuse, and improve the accuracy of financial data.
LEIs are issued by “Local Operating Units” (LOUs) of the Global LEI System endorsed by the Regulatory Oversight Committee and LOUs accredited by the LEI foundation. Some of these registries serve a given country while others offer services to entities worldwide. In India, Legal Entity Identifier India Limited (LEIL) which is a wholly-owned Subsidiary of the Clearing Corporation of India Ltd (CCIL) established as a Local Operating Unit (LOU). The entity that wants to register LEI will be required to submit the necessary documents including Board Resolution and/or Power of Attorney in the format as specified by LEIL.
The Reserve Bank of India vide circular RBI/2016-17/314 FMRD.FMID No.14/11.01.007/2-16-17 dated June 01, 2017, has mandated the implementation of the LEI system for all participants in the Over-the-Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives, and credit derivatives in India, in a phased manner. As per RBI’s above communiqué (dated Nov2, 2017) all corporate bank borrowers having total fund-based and non-fund-based exposure of 5 crores and above to obtain Legal Entity Identifier (LEI) registration in a phased manner and capture the same in the Central Repository of Information on Large Credits (CRILCS). Accordingly, banks were asked to advise their large corporate borrowers to obtain LEI. In the initial phase, borrowers having total exposures of above Rs.50 crore were asked to obtain LEI and subsequently, borrowers of 5 crores and above were asked to obtain LEI in the phased manner. As per RBI direction Borrowers who do not obtain LEI as per the schedule are not to be granted renewal/enhancement of credit facilities. “This will facilitate the assessment of aggregate borrowing by corporate groups and monitoring of the financial profile of an entity/group. This requirement will be implemented in a calibrated, but time-bound manner” it said.
Payment transactions:
Further, through its circular dated January 5, 2021, RBI introduced the LEI system for all payment transactions of value Rs 50 crore and above undertaken by entities (non-individuals) using Reserve Bank-run Centralised Payment Systems viz. Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT), effective from April 1, 2021.
Schedule for implementation of LEI in India
Total Exposure to Scheduled Commercial banks to be completed by
₹ 1000 crore and above: Mar 31, 2018
Between ₹ 500 crore and ₹ 1000 crore : Jun 30, 2018
Between ₹ 100 crore and ₹ 500 crore : Mar 31, 2019
Between ₹ 50 crore and ₹ 100 crore :Dec 31, 2019
However, based on the feedback and requests received from market participants, and to enable the smoother implementation of the LEI system in non-derivative markets, the timelines for implementation (Phase I and Phase II) are extended by RBI vide notification RBI/2018-19/177/FMRD.FMID.No.15/11.01.007/2018-19 dated April 26, 2019.
Phase: Net Worth of Entities Extended Deadline
Phase I: Above Rs.10000 million December 31, 2019
Phase II: Between Rs.2000 million and Rs 10000 million December 31, 2019
Phase III up to Rs.2000 million March 31, 2020
RBI has asked Banks to encourage large borrowers to obtain LEI for their parent entity as well as all subsidiaries and associates. Borrowers who do not obtain LEI as per the schedule are not to be granted renewal/enhancement of credit facilities.
What is the Global Legal Entity Identifier Foundation (GLEIF)?
The Global Legal Entity Identifier Foundation (GLEIF) was established by the Financial Stability Board in June 2014, to support the implementation and use of the Legal Entity Identifier (LEI). The foundation is backed and overseen by the LEI Regulatory Oversight Committee, representing public authorities from around the globe that have come together to jointly drive forward transparency within the global financial markets. GLEIF is headquartered in Basel, Switzerland.
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From April 1, entities to quote LEI for all payment transactions of above 50 crores
I am a small MSME company in tamilnadu. We have an export order now and got advance payment for it. Balance payment we shall receive in feb 2019. I have requested my bank to forward book 22000USD for month of Feb mar 2019. But they are asking me to get LEI number. Is this LEI necessary for forward contract booking ? and needed for small company like ours doing total export turnover of USD60000 per year ?
As per RBI’s communiqué (Nov2, 2017) all bank borrowers having total fund based and non-fund based exposure of crore and above to obtain Legal Entity Identifier (LEI) in a phased manner as mentioned in my post. The central bank said entities without an LEI code would not be eligible to participate in the OTC (Over the counter) derivative markets after the date specified in the schedule. In both the cases, your unit does not require LEI number. As such I don’t think LEI is compulsory for your unit. However, please check up from the bank whether they have received any communication from their Head Office or RBI in this regard