From blockchain-enabled platforms to cloud-based servers holding petabyte upon petabyte of data, the future of trade is promising to be an extremely high-tech affair. But the most transformative change will arguably come from a far humbler initiative: simply equipping each and every party to a transaction with a single, globally recognised ID number. Eleanor Wragg reports.


Within global trade, counterparties might be referred to in dozens of different ways. These can include a registered legal name, ‘doing business as’ or commonly abbreviated name, any of the multiple usernames used to access banking systems, or even misspelled or truncated versions caused by manual entry errors. This makes accurately identifying information on them extremely complex, requiring a significant investment in time, money and resources.

Elegant in its simplicity, the legal entity identifier (LEI) reduces all of these identifiers into one unique, electronic, standard code that connects to annually verified business reference data and ownership structure information in a freely accessible online registry – the LEI Index. This can be quickly checked by anyone at any time, enabling companies and banks to know precisely who they are doing business with.

The solution has garnered wide support, with the International Chamber of Commerce (ICC) referring to it as a “digital trade enabler” that can enable companies to passport their identities across networks. Meanwhile, a study by consultancy firm McKinsey has shown that the alphanumeric code could save banks millions of dollars in know your customer costs and reduce the time spent on compliance activities.

However, in spite of its many benefits, use of the LEI is far from widespread. Speaking to GTR, Stephan Wolf, CEO of the Global Legal Entity Identifier Foundation (GLEIF), outlines the roadmap ahead.


GTR: What is the current status of LEI adoption?

Wolf: The first quarter of 2022 saw the achievement of a new milestone: over 2 million active LEIs worldwide. Over the quarter, more than 65,000 new LEIs were issued globally, a growth rate of 3.3%. We’re seeing growth all around the world. Iceland notched up the fastest LEI growth rate for the quarter at 13.2%, closely followed by India, Saudi Arabia, China and Estonia.


GTR: While these growth rates are impressive, there are an estimated 250 to 400 million businesses on earth, which means it will still take decades for the LEI to achieve global take-up. What are you doing to accelerate implementation?

Wolf: This is a question that we are discussing at every board meeting with our directors and the regulators. First of all, let’s look at the barriers to entry. The first is very simply the cost. There is a sign-up fee and a renewal fee, and although they are low, they clearly represent an issue, since the overall renewal rate for the LEI is only 61.5%. This is predominantly an issue in the SME space. They don’t want to pay the fees, and they consider applying for an LEI to be an administrative burden.

The second barrier is one of change management. Banks and corporates have data scattered across different departments on legacy systems, and they’ve built up complicated layers of technology that get data from all kinds of sources. It works and it runs, and nobody wants to change their legacy systems for the sake of a number. The LEI is a theoretical option for them: they understand the value of it but when we ask them to put budget forward for next year to implement the LEI natively into their systems, there is pushback. However, in the trade space, there is a lot of dynamism at the moment around digitalisation and everyone is revamping their systems, so there’s a big opportunity to embed the LEI into new platforms as they are created.

The third is the value proposition, and this is starting to change. If you are a small corporate, what can you do with an LEI? You give it to your bank so they can do their checks, but you yourself have no immediate use case for it. That is why we are so interested in reaching out to other industries, because if you look at supply chains and trade, all of a sudden it makes perfect sense to have an LEI. It’s almost like a marketing vehicle where you advertise yourself to your counterparties and you can build transactions with the confidence that you know who you are dealing with. The global supply chain stands to benefit enormously from all participants having an LEI.


GTR: What efforts are you undertaking to overcome the cost objection?

Wolf: One option that we are working on is the idea of bulk registrations. In September 2021, the European Systemic Risk Board, which oversees the financial system of the European Union to prevent and mitigate risk, published an occasional paper discussing the importance of the LEI, and recommended that the established global system for issuing LEIs be extended to encompass national business registers, which could issue LEIs at the point of entity registration, and financial institutions, which can facilitate LEI issuance to their legal entity clients by assuming either registration agent or validation agent roles.

If company law was amended to mandate the issuing of LEIs to all registered entities in bulk via the relevant business registers in each jurisdiction, it would remove the cost and administrative burden dramatically given economies of scale, and the costs to businesses could either be waived entirely or replaced by a very modest fee at the business register.

We’re making progress: in December 2021, the European Commission published a communication noting that it will propose amendments in relevant reporting frameworks to systematically require reporting of the LEI by entities that have it and, by 2023, report on whether or not to make the LEI mandatory for a wider range of legal entities.

Meanwhile, in February 2022, the European Banking Authority indicated its support for the introduction of an EU-level legally binding requirement for the use of the LEI.

This would also help to increase LEI coverage on a global scale, because entities involved in financial transactions that sit outside of a regulator’s jurisdiction would also have to comply.


GTR: Regulatory changes to mandate the use of the LEI will likely take some time, and will require a global, concerted effort to achieve. What can be done now to boost take-up, particularly among SMEs?

Wolf: The business case for a global identifier is increasing and being accelerated by the digitalisation of the world’s economies. Businesses and consumers everywhere will benefit from a concerted and co-ordinated push for a global and non-proprietary standard that can confirm who they are doing business with, not only in the context of cross-border trade, but also in the context of buying and paying online and invoicing.

The LEI is essentially a public good, but it requires the network effect to be successful. We’re leveraging partnerships with financial institutions who are directly embedding LEI issuance into their usual client onboarding process. The first bank to do this was JP Morgan, which became the first validation agent in the LEI system in 2020, and more banks have now joined. We’re also linking up with companies that are active in the trade digitisation space, such as blockchain trade finance platform Contour and trade finance software and solutions provider Surecomp, which are using the LEI index to give their customers real-time access to the unique identification data of legal entities participating in their trade finance transactions.

We’re also actively engaging with industry bodies, such as the ICC’s Digital Standards Initiative (DSI). GLEIF is a member of the DSI’s industry advisory board, and contributes to its work on defining and promoting the requirements needed to create and maintain a trusted technology environment in trade.

At this point, it really is about education and awareness raising.

The LEI, and its sister application the verifiable LEI (vLEI), will solve the issue of trust in financial transactions globally, making trade finance more accessible by streamlining connections between trade participants and reducing costs. It really is the key to trade digitisation: with one identifier, participants in global supply chains can access digital platforms and operate across networks. As has long been the case in trade digitisation, we believe that it will be the payments space that will drive adoption first, given the LEI’s utility in fraud and money laundering prevention. Once critical mass is reached there, it is only a matter of time until the LEI can pave the way for the digitisation of trade.