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Legal Entity Identifiers - the low down
A Legal Entity Identifier (LEI) is a 20 character code, which provides a globally unique "name" for entities which participate in certain types of financial markets. The 20 character code is not only a unique name but also provides a coded description of the entity.
LEIs were developed in the aftermath of the global financial crisis of 2007/2008. It seems many institutions in global financial markets did not know the identity of the counterparty to financial transactions they had entered into and, consequently, could not know whether the counterparty was solid or a man of straw.
LEIs are intended to permit the counterparty to be identified and thereby allow the financial institution which has entered into a financial transaction with the counterparty to assess their credit worth.
An LEI character code consists of four groups of characters being grouped in 4-2-12-2 format.
An example of an LEI is 5493 00-0IBP32UQZ0KL-24 which is the LEI for the British Broadcasting Corporation.
The first 4 characters - which in the case of the BBC are “5493”are allocated by the local operating unit (local franchisee) of the international operator.
The next 2 characters are reserved for future use - so are given a dummy value of “00”.
The next 12 are a mixture of alpha numeric characters - which in the case of the BBC is so 0IBP32UQZ0KL - is a unique code given to the entity by the local operating unit.
The final 2 characters are a check sum to permit the determination whether the LEI is genuine.
Who grants LEIs?
LEIs are granted in Australia by GS1 Australia Limited which is the local operating unit for Australia. GS1 Australia has been authorised by the Global Legal Entity Identifier Foundation, the head honcho for LEIs.
What is an entity?
An entity can be an individual, a group of individuals, a company, a trust or a superannuation fund – including SMSFs.
How much do they cost?
The initial application fee is about $145 and the subsequent annual renewal fee is about $96. These figures are approximate because the actual application and renewal fees are charged in euros. The head honcho for LEIs is based in Europe and, consequently, the pricing is expressed in euros.
Must an SMSF have an LEI?
An SMSF is not required to have an LEI.
An SMSF will require an LEI if the SMSF directly participates in an over-the-counter derivative transaction to which the ASIC Derivative Transaction Rules (Reporting) 2013 apply.
For the vast majority of SMSFs there is no need to have an LEI.
So long as the SMSF, if it directly participates in a derivative transaction, only participates in derivative transactions that are carried out on a regulated market, then the SMSF will not be required to have an LEI.