Enabling Regulators and Empowering Businesses in the Fight Against Financial Crime with the LEI

Regulations are often written with the lessons learned from past failures. This is especially true for the substantial body of regulations worldwide that support the adoption of the Legal Entity Identifier (LEI). More than a decade since its introduction, the LEI has become not only a widely adopted regulatory requirement in the global fight against financial crime but also a valuable tool for businesses—driving operational efficiency, enhancing cross-border trust, and enabling smarter decision-making.

A Global Public Good Serving the Needs of Both Public and Private Sectors

The collapse of Lehman Brothers in 2008 triggered a global financial crisis, severely undermining trust in financial institutions. At the heart of the crisis was the inability to reliably assess exposures and aggregate systemic risk across markets and jurisdictions. In response, the Financial Stability Board (FSB) established the Global LEI System in coordination with private-sector entities and appointed the Global Legal Entity Identifier Foundation (GLEIF)—a supranational, not-for-profit organization headquartered in Switzerland—as its operational steward.

To this day, the Global LEI System is unique, serving as the only regulatory-mandated identification management system for legal entities on a global scale. Designed to function as a global public good, the system follows a federated, three-tier architecture. At the top level, the Regulatory Oversight Committee (ROC)—comprising public authorities and market regulators from over 50 jurisdictions—provides governance and oversight.

From Regulatory Compliance to Business Value

Since its inception, the LEI has emerged as one of the most important standards in the global financial industry. The 2010 Dodd-Frank Act mandated the use of LEIs for identifying counterparties to derivative transactions in the United States, with the European Union following suit in 2012 with the European Market Infrastructure Regulation (EMIR). This was further reinforced by MiFID II and MiFIR in 2014. The steadfast regulatory support for the LEI in major jurisdictions led to the establishment of the so-called 'No LEI, No Trade' principle, which effectively reflects global efforts to enhance market transparency and mitigate systemic risk.

Although full market adoption remains a long-term objective, over 2.8 million LEIs have been issued globally to date, providing near-complete coverage among major participants in the OTC derivatives and securities markets. Notably, a substantial body of regulation—comprising more than 300 global mandates and directives—either mandates or promotes the use of LEIs across a broad spectrum of financial sector use cases. These include payments and settlement processes, data standardization, customer onboarding and KYC procedures, credit assessments, ESG reporting, foreign direct investment, and sanctions screening. This is coupled with growing recognition of the significant business benefits afforded by LEIs beyond regulatory mandates.

 

Supporting the Global Fight Against Financial Crime: The LEI in Cross-Border Payments

In an increasingly interconnected and faster global economy, cross-border transactions are rapidly gaining traction, with estimates suggesting they will reach $250 trillion by 2027. The complexity of ensuring data interoperability in cross-border scenarios, where distinct regulatory frameworks come into play, opens the door to fraudsters and criminals who can easily take advantage of an antiquated and fragmented approach to entity identification.

Leveraging ten years of global adoption, the LEI is uniquely well-positioned to advance the global fight against financial crime:

·       The LEI is internationally applicable, and its reference data is reliably confirmed and regularly updated by a global network of issuers, ensuring data accuracy at the source.

·       The Global LEI System remains commercially neutral and politically independent, and all LEI reference data is freely available to the public.

·       All LEI data is ISO-standardized and undergoes stringent data quality controls. Moreover, data users can challenge this data, enabling global oversight.

·       The LEI offers unrivaled interoperability thanks to its mapping with  myriad  other identifiers and the ongoing linking initiative with business registers.

These benefits are reflected in the growing support from key stakeholders, including the Financial Stability Board (FSB), the BIS Committee on Payments and Market Infrastructures (CPMI), the Wolfsberg Group, and, more recently, the Financial Action Task Force (FATF) in its revision of Recommendation 16 on Payment Transparency.

This international stakeholder support is accompanied by national-level implementation promoted by relevant market infrastructures. In India, the Reserve Bank of India (RBI) has mandated the use of the LEI to clearly identify the remitter and beneficiary in all single payment transactions of ₹50 crore and above undertaken by entities. In the UK, the Bank of England is mandating the use of the LEI for all direct participants in CHAPS from 1 May 2025, and has already reported an 80% increase in messages containing an LEI or Purpose Code over the last six months.

Towards a Trusted, Transparent Global Financial Ecosystem

As the pace of change across the financial industry continues to accelerate due to unprecedented technological advancements in areas such as blockchain, artificial intelligence, and digital payments, regulators worldwide are warning of increasing risks. To effectively address these emerging challenges and safeguard fundamental principles in the financial sector—such as proper risk management, reliable data, and trustworthy counterparty identification—GLEIF has developed the verifiable LEI (vLEI).

Building on the globally recognized and regulator-supported LEI, the vLEI provides organizations and their representatives with automatically verifiable digital identities, thereby helping to bridge the trust gap in digital ecosystems. If adopted at the regulatory level, the vLEI could enable a global framework for organizational identity, allowing regulators and financial services providers to tackle financial crime by enhancing due diligence and KYC processes, streamlining sanctions screening, and more effectively targeting risk areas such as money laundering and fraud in digital transactions—all while reducing costs.

About the Author:

Alexandre Kech is the CEO of the Global Legal Entity Identifier Foundation (GLEIF).