How can you be certain the person on the other end of a Facebook chat is who they claim to be? 

Well, to be honest, who cares? 

I mean, we all have thousands of Facebook friends, many of whom we've never seen in real life, but we never worry about their identities because, well, we have no reason to.

But the story changes the moment 'MONEY' comes into the picture.

While we may not care about the identity of a Facebook friend, we definitely care about the identity of a business brand we want to transact with. I mean, now, something is at stake.

So, how do you go about that? How do you ascertain that a business partner, associate, financial institution, or customer is who they claim to be?

To be honest, it's not easy. Traditionally, there were only a few 'identity checks' necessary to affirm the identity of an entity. However, with the advent of digital environments (social media and the likes), the checks just got more tedious.

According to the Global Legal Entity Identifier Foundation (GLEIF), 50% of financial institutions use approximately 4 identifiers to identify corporate clients. You can imagine the amount of time, effort, and resources that go into that. 

Yet, even at that, there's still no 100% guarantee that a customer is who they really claim to be.

For instance, all financial institutions are big on KYC compliance. Yet, many banks still find themselves dealing with customers who launder money, customers who provide 'falsified' information, customers who aren't easily identifiable, and all sorts.

Clearly, identifying an entity is not as easy as it sounds.

The introduction of LEI and LEI codes

The problems highlighted above are amongst the challenges banks, investors, credit unions, credit unions, and regular individuals involved in the financial markets face every day.

The inability to tell "who's" really behind "what." 

Even as a regular individual, you must have been in that position where you want to purchase something from a brand online, but you aren't sure whether to input your credit card details. Why? Because you have no way of verifying their identity. What if they're not who they claim to be?

To resolve this age-old problem, Legal entity identifier numbers were developed.

I bet you're just hearing about LEI number for the first time. No need to be shy if you are. We all have our first-times. Moreover, LEI number only came into existence a few years ago - 2009, to be exact. 

What are LEI Numbers?

The Global Legal Entity Identifier Foundation defines LEI number as a 20-character, alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO).  It connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions.

To put in layman's terms, LEI number is a global registration number used to uniquely identify entities (business organizations and government agencies) worldwide.

In other words, it is a system of identification that solves the age-old challenge of 'entity identification.' With a legal entity identifier, anybody can find out anything they need to know about any entity worldwide. 

For instance, say you want to start an investment company in the UK that services US investors. To proceed, you may need to partner with a US-based insurer. How would you verify the identity of this company? You can quickly search an LEI database to learn everything you need to know about the brand.

Who are legal entities?

According to Wikipedia, Legal entities are organizations such as companies or government entities that participate in financial transactions. An individual person may not obtain an LEI.

Who can obtain an LEI/Who needs one?

As per Wiki's definition, only legal entities may be qualified for LEI application and LEI registration. That means a random individual may not be able to acquire a legal entity identifier. And that makes sense. 

Why would a regular individual with no financial or trading intentions want to prove their identity in the financial space?

 How do legal entities get LEI numbers?

Once you've determined you need an LEI registration, the next thing is to submit an LEI application. You can do that by first obtaining an LEI from your Local Operating Unit (LOU) and then filling it.

Bear in mind, though, that the process can be strenuous because of the legal requirements and regulations. This is why many legal entities opt to hire an LEI application service to help them out. You, too, can do the same. 

After application, your LEI number will be issued within 6 to 48 hours.

How to renew your LEI number

LEI number is only valid for one year. After one year, you have to renew your status. 

Why get an LEI number?

  • Trust building

Imagine you want to do business with someone on the internet, but you can't find any means of verifying their identity; what would you do? Chances are you'll find another person to do business with. That's exactly how your clients feel (especially B2B clients) when they can't find your LEI details.

  • Identification made easy 

With the aid of a legal entity identifier, you put your business on a globally-searchable database, making it easy for anybody to find anything they need to know about you. For instance, during the ongoing global shipping crisis, brands with LEI encountered less difficulty clearing their shipments off the docks because port workers could easily identify them.

  • Credibility

Having an LEI number is a way of joining a growing list of credible businesses and institutions. 

How do you search the LEI database?

So far, we've been discussing how you can get on the LEI identification framework. Now, let's imagine you want to find out about a brand (say, a B2B client); how can you search the LEI database for such information?

Here is how.

The LEI search tool

GLEIF has developed an LEI number search tool to make the process easy. Here's a link to the search tool.

What will you find?

When you search the GLEIF database using the search tool, you'll find the LEI record of your target company, with the following information provided.

  • Company name

  • 'Doing business as' names

  • Type of business (whether LLC, Fund, PLC, Not-For-Profit, Trust 

  • Parent company information

  • Children company information

  • Business registration number

For example, if I search for the LEI record of Meta Platforms, Inc., right now, the search tool will show me the family tree, including Facebook, Instagram, Whatsapp, and the likes. 

Using the search tool

  • Click the link above to enter the search tool

  • Enter any company name you have in mind into the search bar

https://www.lei-worldwide.com/uploads/1/0/8/2/108222369/lei-lookup_orig.png

  • The system should respond with an LEI record for the target company

  • If you don't get a result, try filtering the search by turning on the 'Expert Mode' button in the top right corner. This will display a bundle of multiple search filters like this: 

Searching in the 'Expert Mode' is a way of combining multiple search filters. At first, you may find this search feature overwhelming. But you need not be overwhelmed. You just need to play around with a couple of filter combinations. Just the same way you would on any regular site.

For example, say you want to find a list of Public Companies in Nevada, you simply combine the filters 'Company Type,' 'Country,' 'City,' and 'Post Code.' That will help streamline your search and bring you the exact results you desire.

What is an LEI Status?

Remember we spoke about LEI renewal earlier? Well, when a company hasn't renewed its LEI, the GLEIF search tool will reveal that its LEI status as 

lapsed lei  "LAPSED" 

But if renewed, the system will display, 

issued lei "ISSUED."