The Legal Entity Identifier by RBI has been introduced to regulate the transactions of large amounts in centralized payment systems. The purpose is to improve the accuracy and quality of the financial data system to manage risks adequately for withstanding any global financial crisis.
History of the Legal Entity Identifier by RBI
The Legal Entity Identifier by RBI (LEI) came into existence in a phased way for corporates that borrow large sums of money and those who participate in derivate and non-derivative trading segments through OTC (over the counter). RBI had introduced LEI vide letter number RBI/2020-21/82 dated 5th January 2021. The LEI has been effective in India since 1st April 2021.
What is the Legal Entity Identifier by RBI?
The LEI is an alpha-numeric code containing 20 digits. The Legal Entity Identifier by RBI is used for the unique identification of non-individual parties engaging in significantly high-valued financial transactions through RBI payment gateways or in regulated segments involving derivative or non-derivative markets.
Importance of the Legal Entity Identifier by RBI
The LEI code constitutes an important measure for improving the reliability and quality of high-valued financial data systems to facilitate optimum management of risks after the global financial crisis.
After the collapse of the Lehman Brothers in September 2008, private sector firms and financial regulators found it hard to ascertain the complete extent of exposure of corporates and other market entities to Lehman. A quick assessment of market participants' network connected to Lehman could not be done. Hence, a system was necessary to represent the actual risk exposure nature across the financial spectrum.
Interesting Facts About Legal Entity Identifier by RBI
Some important facts about the Legal Entity Identifier by RBI have been discussed below.
- The LEI covers all monetary transactions by non-individual entities of INR 50 crore or more conducted through RBI payment gateways
- The centralized payment systems included are RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer)
- LEI information related to the beneficiary and remitter is included in payment details
- Financial institutions facilitating payments are responsible for maintaining transactional records
- The LEI can be obtained from authorized LOUs (Local Operating Units) having accreditation of GLEIF (Global Legal Entity Identifier Foundation)
- GLEIF implements and facilitates the usage of the LEI
- The primary issuer overseeing the allotment of the LEI is the Legal Entity Identifier India Limited (recognized by RBI under 2007's Payment and Settlement Systems Act)
- LEI information is notified in the Remittance Information field for RTGS and in the Sender to Receiver Information section for NEFT
- The LEI code has to be obtained by non-resident entities (those outside India) compulsorily if they want to carry out financial transactions in markets or through banks falling under RBI's ambit
- If the non-resident entity has no legal status in the nation of incorporation, the LEI code of management of the parent company can be used
- Central and State Government departments or ministries are exempted from obtaining the LEI code, but government-owned undertakings and corporations have to obtain the LEI
- Individuals are also not required to obtain the LEI code, but if an individual is transacting with a non-individual entity, the LEI will be needed
It is the responsibility of the entities engaging in high-valued payment transactions to ensure that their Legal Entity Identifier by RBI has not lapsed. Global LEI System rules govern the validity of the LEI. Monetary transactions in RBI-regulated markets cannot be carried out with an invalid LEI code.
FAQs on Legal Entity Identifier by RBI
Q. What is the Legal Entity Identifier by RBI?
The Legal Entity Identifier by RBI is an alpha-numeric code of 20 characters used for the unique identification of parties (non-individual) engaging in high-valued (INR 50 crore or more) transactions worldwide.
Q. Which authorized body is responsible for implementing the Legal Entity Identifier by RBI?
The Global Legal Entity Identifier Foundation (GLEIF) is responsible for implementing the Legal Entity Identifier by RBI.
Q. From where can an entity obtain the Legal Entity Identifier by RBI?
An entity can obtain the Legal Entity Identifier by RBI from the Legal Entity Identifier India Limited (LEIL) approved LOUs (Local Operating Units).
Q. From which date is the Legal Entity Identifier by RBI effective in India?
The Legal Entity Identifier by RBI has been effective in India since 1st April 2021.
Q. Is anyone exempt from obtaining the Legal Entity Identifier by RBI even for high-value transactions?
Yes, central and state government ministries and departments, as well as individuals, are exempt (provided the transaction does not happen with a non-individual entity) from obtaining the Legal Entity Identifier by RBI.