What is the
beneficiary lei code meaning
Having an LEI Legal Entity Identifier is a requirement for many legal entities under a litany of global finacial regulations. Many legal entities requiring an LEI Number include Retirement Funds, Trusts, Pension Schemes and Insurance related schemes and policies. In the event that the beneficiary to any of these legal entities is another legal entity then it will also require an LEI Code for the purpose of legal entity identification in reporting.
This allows regulators, market participants and overseers have full transparency and global identification of which entity is the beneficiary by having access to the global LEI directory.
WHY IS THE BENEFICIARY LEI CODE REQUIRED?
There are over 116 regulations globally mandating the use of an LEI for various reasons. The beneficiary LEI code is required for increasing transparency around legal entities and the persons/entities entitled to receiving the proceeds or assets. This removes confusion around who is who, and which entity of which organisation is the beneficiary.
For example, the beneficiary of a Trust may be another organisation, but this organisation might have more than 5 legal entities. This is why LEI Level 2 Data is so valuable.
In order to enhance transparency in the global markets that span multiple jurisdictions, the LEI is used as it is unique, global, freely accessible, maintains up to date data due to LEI renewals and has a strict quality control vetting system implemented by the GLEIF.
For example, in India the LEI is mandated for use in transactions involving 50 Crore or more (Rupees). This was issued in an RBI LEI Circular recently.
"All single payment transactions of ₹50 crore and above undertaken by entities (non-individuals) should include remitter and beneficiary LEI information. This is applicable to transactions undertaken through the NEFT and RTGS payment systems.
In case of RTGS, both customer payment and inter-bank transactions, meeting the above criterion, should include LEI information."
By requesting the LEI of the payee (remitter) and also the counterparty (beneficiary) who is receipt of the funds the RBI now maintain oversight on who is sending money to whom allowing for instant and reliable reconciliation of the movement of large sums of money within its jurisdiction. This has a huge influence on AML (Anti-Money Laundering) and the fight against illicit activities within the country. This approach is also recommended by the European Central Bank for EU countries to adopt a similar stance on the fight against financial crimes.
The distinction should be made between individuals sending moeny to one another, and legal entities sending money. The LEI focuses mainly on legal entities, so it shines a light on corporate financial activities, rather than private, natural persons.
The RBI go on to say "The remitting bank should ensure that LEI information for both sender and beneficiary is captured. However, both the remitting and the beneficiary banks should maintain records of all payment transactions of ₹50 crore and above."
ESMA (The European Securities Monetary Authority) the watchdog and regulator over corporate AML within the European Union mandate the use of LEIs under the EMIR regulation (European Markets Infrastructure Regulation). Under EMIR, ESMA state that counterparties to derivatives contracts, beneficiaries, as well as brokers and clearing memebers are all required to have a Legal Entity Identifier registered on the global LEI index.
Which regulations require a beneficiary LEI to be present:
- EMIR (European Markets Infrastructure Regulation)
- SFTR (Securities Financing Transacting Regulation)
- Solvency II (Pension Funds & Insurance Companies)
- RBI Reserve Bank of India LEI Requirements
- Financial Transparency Act, USA
- Find a list of global LEI regulations here
How to finD a beneficiary LEI?
Assuming a legal entity has already obtained an LEI from the LEI Registration portal the LEI will be visible by conducting an LEI search in the global LEI Directory. If conducting a transaction with another legal entity online, you can simply search the companies legal name and filter by jurisdiction. Conducting an LEI check of a counterparty, or LEI beneficiary you will see key referenc e data points on that legal entity.
What does an LEI Check show:
- Legal name
- Legal Address/Jurisdiction
- Company type, and activity status
- Date of incorporation
- LEI issuer
- Secondary datas e.g names, parent companies etc
The LEI search tool will automaticaly show the LEI data, and the beneficiary data through the search results on screen. This can be useful as when you are searching for a beneficiary LEI in India for example, your bank may request “Please enter a valid 20-digit alphanumeric beneficiary LEI” in accordance with the RBI regulations in NEFT and RTGS payment messages. If you do not have the beneficiary LEI to hand it can be found by conducting a simple LEI check in the global LEI directory.
Once you have found the correct entity from the LEI search results then you may proceed to enter to you payment form with the bank. If an LEI is not present, please consider asing the beneficiary for their LEI. If they have not yet obtained an LEI one can easily be obtained here: Register a beneficiary LEI
Legal Entity Identifier Limit
The use of the Legal Entity Identifier is mandatory for legal entities engaging in financial transactions above 5 Crore. This number is known as the Legal Entity Identifier Limit in India.
Just last year the Reserve Bank of India (RBI) requires entities engagin in transactions to use the Legal Entity Identifier (LEI) as part of its efforts to enhance transparency within their financial system. The LEI is being used to identify counterparties participating in high value, or large financial transactions (e.g 50 million euro +) in India. This to enables regulators to monitor and assess systemic risk across the financial system, when siuch large amounts are involved.
India, or the RBI have implemented the LEI system in phases, with the largest financial institutions with massive transaction value on a international scare required to obtain an LEI first, followed by smaller regulated financial institution which may require an LEI under a litany of global, Asian, or Indian regulations.
The RBI has released a circular specifying that the LEI must be used for the purpose of reporting and record keeping in financial transactions and to improve the transparency and stability of the financial markets.