Promoting trust and transparency in the digital economy

Authored by Stephan Wolf, CEO, Global LEI Foundation

There is a universal challenge which threatens the stability of the digital economy: trust. As the volume of cross-border transactions continues to increase, the risk of fraud and criminal activity rises in unison. To combat this, organizations must be able to establish a stakeholder’s legal identity in order to facilitate trust and transparency in transactions worldwide.

The Global LEI System is the only open, commercially neutral, standardized and regulatory endorsed system capable of establishing digitized trust between all legal entities, everywhere. Based on the ISO standard 17442, the Legal Entity Identifier (LEI) is a 20-digit, alphanumeric code designed to enable smarter, less costly and more reliable decisions about who to do business with. Already there are more than 1.7 million LEIs in circulation worldwide, and there is huge untapped potential for both adoption and utilization to grow dramatically and deliver new value across a whole host of new sectors and use-cases. 

THE LEI IN THE UNITED STATES

To date, 13% of LEIs belong to organizations in the United States, where the LEI is mandated within the Dodd-Frank Wall Street Reform and Consumer Protection Act, Securities Exchange Act, and Home Mortgage Disclosure Act. However, recent research demonstrates that the U.S. federal government uses more than 50 distinct entity identification systems - all of which are separate and incompatible with one another. As a consequence, entity identification continues to present a significant challenge for many federal agencies.

Existing and proposed legislation may change this. The OPEN Government Data Act of 2019 requires that “Government data assets made available by an agency shall be published as machine-readable data…in an open format, and…under open licenses.” This, combined with the Corporate Transparency Act and the Financial Transparency Act, opens the door for the LEI to be adopted across a greater number of financial regulators and agencies. 

If passed by law, the proposed Financial Transparency Act of 2019, introduced in the 116th Congress (2019-2020), will require federal financial regulatory agencies to adopt specified data standards, including the LEI. This would bring significant benefits: it will identify and mitigate risk in markets, improve supply chain efficiency, and underpin trust and transparency across all government-to-business relationships.

THE BROADER OPPORTUNITY FOR THE LEI

By introducing the LEI more widely outside of financial regulators and markets, counterparty identification and verification would become more efficient and effective in multiple sectors including - but not limited to - banking, supply chain, and e-commerce. The LEI is designed to provide the following benefits, consistently, regardless of industry sector: 

• Global interoperability: By using one unique identifier worldwide, all users can rely on one standard for entity identification to incorporate into their systems.
• Cost savings: The LEI enables any user to identify a counterparty quickly and accurately, reducing the risk of doing business with the ‘wrong’ party.
• Machine-readable: All LEI data is available in real-time via a free application programming interface (API).
• Open and non-proprietary: The Global LEI Index places the LEI data at the disposal of any interested party, free of charge and without limitations.
• Mapping with other identifiers: The LEI functions as the linchpin identifier, serving as a globally unique number with a relation to many existing national or local numbers, including the Business Identifier Code (BIC) of Swift and the International Securities Identification Number (ISIN) of Association of National Numbering Agencies (ANNA).
• Supports the digitalization of U.S. companies: The ISO LEI standard enables consistent representation of the LEI in digital certificates. This means that recipients of digitally signed documents can leverage the LEI to conduct identity verification, authentication and authorization followed by data aggregation without any human intervention.

 The global pandemic has significantly accelerated the pace of change within the digital economy and it is likely that there will be many new challenges to face. Happily, today’s challenge of trust and transparency is one which can be overcome with a proven solution, capable of unlocking the true benefits of a digitally enabled world. Now is the time to explore new options. The Global LEI System is ready and waiting.