Building Trust in Payments: How the LEI Powers Compliance Under FATF’s Updated Travel Rule

Author: Clare Rowley, Head of Business Operations at GLEIF

In today’s interconnected financial system, vast sums move across borders at unprecedented speed. Yet, weaknesses in data quality, fragmented information flows, and inconsistent reporting continue to undermine global efforts to curb money laundering, terrorist financing, and fraud. Despite soaring compliance investments, the United Nations estimates that as much as $2 trillion is laundered annually, with fraud plaguing instant credit transfers.

To address these gaps, the Financial Action Task Force (FATF), the intergovernmental body that sets global standards to combat money laundering and terrorist financing, has sharpened its focus on three priorities: better data sharing, greater standardization, and broader use of advanced analytics. These elements, already highlighted in the Bank for International Settlements’ Project Aurora, are essential to building a more transparent and effective compliance environment.

The Evolution of the Travel Rule

Recommendation 16, widely known as the “Travel Rule,” requires that information on both the originator and beneficiary of payments be made available without delay. After two extensive consultations that drew over 300 industry responses, FATF has now updated its guidance to provide greater clarity and consistency in payment messaging.

The revised Interpretive Note introduces a crucial distinction between individuals and legal entities. For legal persons, standardized identifiers such as the Legal Entity Identifier (LEI) are now explicitly recognized as key data elements. This step aims to create a clearer picture of who is sending and receiving funds, while reducing fraud and errors that often impact end customers.

The Role of the LEI in Verification

A central innovation in the update is the emphasis on the LEI as the global identifier for legal entities. When included in payment messages, the LEI allows immediate, automatic, and cross-border recognition of counterparties. This enhances verification of beneficiaries and supports compliance teams in meeting new requirements with greater efficiency.

Unlike algorithmic name-matching methods, which are prone to errors, LEI-based identification provides precision and reliability. Already embedded in the EU’s Instant Payments Regulation as a recognized alternative for beneficiary verification, the LEI streamlines digital retrieval of entity details and strengthens overall resilience against financial crime.

Complementary Standards: LEI and BIC

The revised recommendation also reaffirms the role of the connected BIC, which is required for participants on the SWIFT network. Importantly, the LEI and BIC coexist with complementary functions: while the BIC identifies network participants, the LEI provides a universal, cross-sector identifier for legal entities worldwide. Together, they form a stronger framework for transparency in payments.

Global Alignment and Momentum

The updates to Recommendation 16 reinforce growing international momentum for the adoption of standardized identifiers in payment flows. Industry groups such as the BIS Committee on Payments and Market Infrastructures, the Wolfsberg Group, and SWIFT’s Payment Market Practice Group (PMPG) have all endorsed the integration of the LEI into cross-border messaging.

At the jurisdictional level, regulators are moving in the same direction. The European Union has already incorporated the LEI into its Transfer of Funds Regulation and AML directives. The Reserve Bank of India requires its use for cross-border payments above ₹50 crore, and the EU’s new Digital Operational Resilience Act mandates LEIs for ICT service providers serving financial institutions.

Looking Ahead

The changes to FATF Recommendation 16, which will come into effect by 2030, mark a pivotal step in the global campaign for greater transparency in payments. More than just a compliance obligation, the integration of globally recognized identifiers offers financial institutions an opportunity to simplify operations, strengthen trust, and contribute to a more open and accountable financial system.

As digitalization accelerates, the demand for verifiable organizational identity will only intensify. With the LEI and its digitally verifiable counterpart, the verifiable LEI (vLEI), at the center of this shift, businesses of all sizes now have a pathway to achieve universal recognition across borders, industries, and technologies.

About the Author:

Clare Rowley is the Head of Business Operations at the Global Legal Entity Identifier Foundation (GLEIF). Prior to working with GLEIF, Ms. Rowley worked at the United States Federal Deposit Insurance Corporation where she led technology initiatives improving bank resolution programs and contributed to research on subprime mortgages. Ms. Rowley is a CFA® charter holder and holds a MS in Predictive Analytics from Northwestern University.