Popular Posts:

What’s New:

Can a business invest in stocks?GLEIF’s verifiable LEI issuer qualification programWhat are child entities and how do they relate to other entities?Do I need an LEI when selling shares?Business transparency: How to create an environment of trust?Anti Money Laundering (AML) in banking: Everything you need to knowKYC in banking: Why it’s important and how to comply?What is a parent company and how does it work?How long does it take to get an LEI?ISO 5009 – Identifying organizational rolesISO 17442 – Standard for LEI code structureLegal Entity Identifier (LEI) vs Tax Identification Number (TIN) in IrelandWhat documents are required for LEI in Ireland?Who is an LOU in the LEI dimension?GMEI Utility vs LEI RegisterLapsed LEI – Why should you keep your LEI active?Who is an LEI Registration Agent?Are LEIs public?Can an individual have an LEI?Do LEI numbers need to be renewed?Why is an LEI code required?Who needs an LEI number?How much does an LEI code cost?LEI Lookup – Fully dedicated LEI search websiteISIN to LEI mappingMiFID regulation | MiFID II LEIGLEIF | Global Legal Entity Identifier FoundationOpen LEIWhat is an LEI database?Legal Entity Identifiers for federal agenciesLegal Entity Identifiers in KYCHow to open a business bank account in the UK?Legal Entity Identifiers in digital certificatesBroad adoption of LEIs could save the global banking sector US $2-4 billionThe European Market Infrastructure Regulation (EMIR) and Legal Entity Identifiers (LEIs)Adoption of LEI in payment messages by the Payments Market Practice Group (PMPG)Cyber Security in a Nutshell

Adoption of LEI in payment messages by the Payments Market Practice Group (PMPG)

In September, the Payments Market Practice Group, or PMPG was set up by SWIFT to bring together payment industry practitioners and define market best practices. They published a paper on the Adoption of LEI in September 2019 and we have decided to bring a short summary of the main points in this post.

The current state of LEI and payments

The regulatory community is seeing the value of LEI and is now taking steps to consider or require the use of an LEI in the payments industry.

The Bank of England, for example, mandates the use of LEI in payments in November 2018. In October 2018, Bank Negara Malaysia and the Financial Market Committee require LEIs to open RENTAS segregated accounts.

Benefits of Legal Entity Identifiers

  • Verified authoritative information about all parties involved in a transaction.
  • Smooth data validation efforts in the payments lifecycle.
  • Create efficiency in transaction chains, reducing costs through interoperability.
  • Improve operational processes by simplifying risk management.
  • Streamline onboarding and Know Your Customer (KYC).
  • Eliminate duplication of processes so full Customer Due Diligence (CDD) is not repeated and KYC and Anti Money Laundering checks are more reliable.
  • Reduce barriers to entry for legal entity identification.
  • Provide insight into “who owns whom” in a corporate structure.
  • Help firms fight fraud and economic crime.
  • Facilitate information sharing with corresponding banking services by using a standardized format.

When Legal Entity Identifiers are fully adopted, they have the potential to innovate payments in three ways.

  1. Greater Speed – simple use of a 20-digit code.
  2. Better analysis to support compliance and business intelligence – effective cross-linking and consolidation of a diverse range of datasets.
  3. Supporting the digital economy – LEI in digital certificates

Challenges to adoption

System changes

Changing payment formats to accommodate new fields is costly and difficult and why would the system change when it’s already built for Business Identifier Codes or BIC numbers? Given that BIC and LEI are different, payment messaging actually has a need for both identifiers.

SWIFT and GLEIF already support this requirement via a certified BIC-to-LEI mapping service.

Cost and effort to obtain LEI

Right now, organizations have to obtain their own LEIs and the cost for them is approximately 220 USD for first-time registration and 68 USD for annual renewal. Assuming the business is registered and provides all the right information, an LEI can be received on the same day as ordering. Otherwise, it can take up to several days.

LEI adoption

While LEI has not yet been mandated for identifying parties in payments, it is recommended that firms consider a more strategic adoption of the LEI as part of the ISO 20022 migration because it has the potential to deliver fundamental changes in financial market operations.

ISO20022 migration

Organizations are required to review data and wherever possible, add LEIs. They are also recommended to adapt business processes to ensure LEIs are captured whenever a new counterparty or customer record is set up.

Regulator role

The public and private sectors should work together to promote, educate and create awareness around LEIs.

Summary

“The PMPG believes now is the appropriate time for the payment industry to begin its adoption of the LEI. Coupled with the other changes happening around the LEI to make it cheaper and easier to obtain, the migration to ISO 20022 provides the right opportunity for the industry to move to adding the LEI into payments messages, infrastructures and processes in a low cost, efficient manner.”