Why do banks require an LEI number?

When a legal entity carries out a reportable financial transaction, the bank or stockbroker must identify the client in its transaction report. The standard identifier for this purpose is the LEI number.

Financial institutions may need an LEI number to identify a legal-entity client that is eligible for one before they execute or report a transaction. This is why a bank or broker may ask for the number before accepting an order.

When does a bank ask for an LEI number?

An LEI number may be required when a company or other legal structure carries out a reportable transaction in financial instruments. These may include transactions in:

• shares and bonds;
• units of exchange-traded funds (ETFs);
• derivatives, such as options, futures, forwards and swaps;
• other instruments covered by transaction or derivatives reporting rules, such as those of the RBI and SEBI.

A bank may ask for the LEI number as early as when a securities account is opened or an investment service begins, so that a later transaction is not delayed.

Why can’t the bank carry out the transaction without an LEI number?

Banks and stockbrokers must report certain transactions to the competent regulator — in India, the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI). If the client is a legal entity or other legal structure, the report identifies it unambiguously by its LEI number.

Under Indian financial market rules, a financial institution may need the client’s LEI number before it executes a reportable transaction. The RBI requires an LEI number from large borrowers and for certain financial market transactions, and SEBI requires one for certain securities market transactions. The requirement can apply to companies, societies, trusts, non-profit organisations and other entities that are eligible for an LEI number.

The LEI number also lets the bank match the client with the correct public record in the GLEIF database, even where organisations in different countries have similar names.

Does every company need an LEI number?

No. Incorporating a company, registering it with the Ministry of Corporate Affairs (MCA) or opening an ordinary current account does not by itself create a general obligation to obtain an LEI number. An LEI number is not normally needed for everyday payments.

An LEI number is usually needed only if the organisation trades in financial instruments or has another reporting obligation that requires a standardised legal entity identifier, for example when derivatives transactions are reported under RBI rules. Ask your bank, broker or investment service provider to confirm which rule applies to the specific transaction.

What should you do if a bank asks for an LEI number?

First, check whether the organisation already has an LEI number.

• If an LEI number already exists, give it to the bank and make sure that its current status is sufficient for the transaction.
• If the organisation does not have an LEI number yet, apply for an LEI number before the transaction.
• If the LEI status is LAPSED but an active record is required, renew the existing LEI number. Do not apply for a second number.

The applicable guidance distinguishes between different reporting roles and transaction types. Whether the number has to be renewed for a particular transaction should be confirmed by the bank or the reporting entity.