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What's in a Name? A Case for the Global Legal Entity Identifier

Data Quality
Legal Entity Identifiers blg image
5 min read
AUTHOR:

Dean Ritz

Senior Advisor to the CEO, Open Data Policies and Practices

Zornitsa Manolova

Head of Data Quality Management and Data Science
Published: 9 February 2021
Last Updated: 25 May 2022

The following article is based on a Datashare podcast recorded by the authors, available here. Datashare is a production of the Data Coalition. Our thanks for the Data Coalition for permission to share its content.

A person's name is distinct yet rarely unique. For example, your city may have a "Main Street" or a "23rd Avenue North" that distinguishes it from all other streets in your area, but there are many other instances of those names in other cities. This ambiguity creates problems for those who work with location-based data. Geospatial locations resolve this ambiguity problem by identifying locations relative to the earth. The Global Legal Entity Identifier System (GLEIS) achieves the same unique identifiers for legal entities, globally.

This article provides an overview of the LEI, formalised as the ISO standard 17442, with implementation managed by the Global Legal Entity Identifier Foundation (GLEIF).

Would you buy a debt instrument where the obligated party couldn't be identified? "Of course not!" you say? That means you—and, actually, all of us—have learned something from the global financial crisis of 2008–09.

Back in 2008, when Lehman Brothers collapsed, banking supervisors around the world were asking financial institutions a very simple question: “What is your aggregate exposure to Lehman Brothers?” The answer that came back consistently across all the major financial institutions was: “We don’t know, and it will probably take weeks, if not months, to get an answer.”

The apparently simple question called for the carrying out of a complicated task that required: 

  1. A transparent overview of the corporate structure
  2. The ability to uniquely and specifically identify counterparties (in order to avoid possible domino effects or circular obligations)

Back in 2008, there was no way to generate this comprehensive, real-time view of the organisation’s legal structure and information about counterparties. Decision-makers were left to guess.

It was a very expensive lesson.

Many of the more than 50 major entity identifiers in use globally are simple systems. A regulator issues an ID usually with a lightweight technology infrastructure supporting its use. For those in the U.S., think of receiving your social security number. The downside is that critical tasks—such as automating the calculation of exposure—are complicated or impractical. What seems simple upfront can be costly downstream. Think of how the simplicity of the social security number system has enabled identity theft. 

What the regulatory and financial service worlds recognised after the global financial crisis was the need for—and shared benefits from—a sophisticated system to bring simplicity to critical tasks. Identity authentication is one such system that received well-deserved attention.

In 2011, the Group of Twenty (G20) called on the Financial Stability Board (FSB) to provide recommendations for a global Legal Entity Identifier (LEI) and a supporting governance structure. This led to the development of the Global LEI System which, through the issuance of LEIs, now provides unique identification of legal entities participating in financial transactions across the globe.

The Global LEI System (GLEIS) assigns 20-digit, alphanumeric LEIs to uniquely identify legal entities participating in transactions worldwide. Each LEI contains information about an entity’s ownership structure and thus answers the questions “who is who” and “who owns whom” among market participants.

Example of ABBA Secheron corporate structure

Source: GLEIF

The details above describe a point in a network of entities which have, in this case, ownership-by and owned-by relationships between them. The knowledge behind this visualisation is the kind of knowledge sought by that same question from 2008: “What is your aggregate exposure to Lehman Brothers?”
 

ABB relationship graph

Source: GLEIF

The global LEI is the critical component of the only open, commercially neutral, standardised and regulatory-endorsed system capable of establishing digitised trust between all legal entities, everywhere.

The Global LEI System is set up as a federated system. The Global Legal Entity Identifier Foundation (GLEIF) is a non-profit Swiss foundation, managing a network of partners—known as the LEI issuing organisations—and ensures the operational integrity of the Global LEI System. Meanwhile, there are 39 accredited LEI issuing organisations. The Regulatory Oversight Committee (ROC) ensures rule compliance by all participants of the system.  

The issue of trust is central to all of this and can be a real sticking point that hinders development. GLEIF’s vision is to enable people and businesses worldwide to make smarter, less costly and more reliable decisions about whom to do business with. But how can an organisation trust that a supplier located a significant distance away is who they say they are? Or, as a person, how can I verify that the organisation receiving personal data is who I believe them to be? 

The challenge is increasing. As more processes and interactions become digital, stakeholders must work harder than ever to legitimise trust.

This puts the field of identity management at the heart of digital transformation. One focus area is promoting the LEI to enhance digital certificates and signing in financial reporting. For example, in order to ensure the integrity of their annual report, organisations can now embed the LEI in the XBRL® format and in the digital certificates used by the executives for signing of the reports

Another effort leverages the use of the LEI in Verifiable Credentials to create verifiable LEIs (vLEIs). Verifiable Credentials are defined as the format for interoperable, cryptographically-verifiable digital credentials being defined by the W3C standards organisation (i.e., Verifiable Claims Working Group). 

If you are responsible for the digital transformation of your organisation, especially regarding regulatory reporting, consider registering for an LEI and beginning to learn how to leverage this system to foster trust in your electronic records and in your financial and regulatory reporting. The shared benefits grow as more organisations adopt the Global LEI System. This is one standard where compliance is inexpensive, easy to adopt and maintain, and ever-growing in value.

XBRL® is a trademark of XBRL International, Inc. All rights reserved. The XBRL® standards are open and freely licensed by way of the XBRL International License Agreement.

About the Author
Dean Ritz headshot
Dean Ritz

Senior Advisor to the CEO, Open Data Policies and Practices

Dean Ritz is a subject matter expert in information modeling with over three decades of experience in various data-dominated domains, including artificial intelligence, expert systems, object-oriented programming, and most recently the modeling of financial information. As a Senior Director at Workiva, he applies his expertise to product strategy for collaborative work management and the management of the company’s expanding patent portfolio. His interests extend to the topics of rhetoric and ethics, with scholarly work in these areas published by Oxford University Press (2011, 2009, 2007), and Routledge (2017).

Zornitsa Manolova
Zornitsa Manolova

Head of Data Quality Management and Data Science

Zornitsa Manolova is leading the Data Quality Management and Data Science team at the Global Legal Entity Identifier Foundation (GLEIF) since April 2018. She is responsible for enhancing and improving the established Data Quality and Data Governance framework by introducing innovative data analytics approaches. Prior to GLEIF, Zornitsa was managing forensic data analytics projects on international financial investigations with PwC Forensics. She studied at the Philipps University in Marburg and holds a German Diploma in Computer Sciences with focus on Machine Learning.

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