Introduction of Legal Entity Identifier for Large Value Transactions in Centralised Payment Systems
The Legal Entity Identifier (LEI) is a 20-digit number used to uniquely identify parties to financial transactions worldwide. It was conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis.
2. LEI has been introduced by the Reserve Bank in a phased manner for participants in the over the counter (OTC) derivative and non-derivative markets as also for large corporate borrowers.
3. It has now been decided to introduce the LEI system for all payment transactions of value ₹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).
4. In preparation for the wider introduction of LEI across all payment transactions, member banks should:
advise entities who undertake large value transactions (₹50 crore and above) to obtain LEI in time, if they do not already have one;
include remitter and beneficiary LEI information in RTGS and NEFT payment messages (details of the identified fields in the messaging structures of RTGS and NEFT for inclusion of LEI information are at Annex);
maintain records of all transactions of ₹50 crore and above through RTGS and / or NEFT.
5. Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (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.
6. These directions are issued under Section 10 (2) read with Section 18 of Payment and Settlement Systems Act, 2007 (Act 51 of 2007) and shall be effective from April 1, 2021.
IRDA (Insurance Regulatory Development Authority) has issued a circular dated 5th June, 2020 wherein it has mandated that all insurers and also corporate borrowers from insurance companies who have borrowed Rs.50 crores or more shall have to obtain Legal Entity Identifier, a 20 character unique identity code issued by Legal Entity Identifier India Ltd.
Legal Entity Identifier is a global reference number that uniquely identifies every legal identity or structure that is party to a financial transaction in any jurisdiction. The structure of the global LEI is determined in detail by ISO Standard 17442 and takes into account Financial Stability Board (FSB) stipulations.
At the time of the financial crisis of 2007–2008, regulators realised that a single identification code unique to each financial institution was not available worldwide. It means that each country had different code systems to recognize the counterpart corporation of financial transactions. Accordingly, it was impossible to identify the transaction details of individual corporations, identify the counterpart of financial transactions, and calculate the total risk amount. This resulted in difficulties in estimating individual corporation’s amount of risk exposure, analyzing risks across the market, and resolving the failing financial institutions. This is one of the factors that made it difficult for the early evolution of the financial crisis.
In response, the LEI system was developed by the 2011 G20 in response to this inability of financial institutions to identify organisations uniquely, so that their financial transactions in different national jurisdictions could be fully tracked.
2. Based on the feedback and requests received from market participants, in the context of the difficulties arising from the outbreak of novel coronavirus disease (COVID-19), and with a view to enabling smoother implementation of the LEI system in non-derivative markets, the timeline for implementation (Phase III) is extended as under:
Net Worth of Entities
Up to ₹ 200 crore
March 31, 2020
September 30, 2020
3. These directions are issued under section 45W, read with section 45U, of the Reserve Bank of India Act, 1934.