Related News

Xalts founders on trade finance digitalisation after Contour acquisition

“Wake-up call”: LEIs could cut trade costs by US$100bn, industry argues

ETG closes first sustainability-linked credit facility

C2FO strengthens supply chain finance offering with managing director hire

ICC issues call for action on Trade Register as regulatory pressures bite

The Global Legal Entity Identifier Foundation (GLEIF) has linked up with digital trade finance platform Contour to drive take-up of the legal entity identifier (LEI).

As part of the partnership, Contour will integrate the LEI into its network, which it says will allow trading parties to benefit from improved data integrity and reliability, creating a more transparent trading environment.

“Standardisation of identity is an important step in enabling businesses to seamlessly participate in multiple, complementary trade networks without encountering administrative barriers,” says Aaron Seabrook, COO at Contour. “We believe in making trade finance more accessible by streamlining connections between trade participants. Our partnership with GLEIF will help us achieve this by equipping users of our network with the information they need to transact with confidence.”

Contour will also financially support parties that conduct trade transactions over its network to obtain an LEI – the cost for which differs between countries but is usually less than US$100, as well as build the identifier into its KYC processes.

“Contour will pay for the sign-up fees as part of our commitment to being inclusive and accessible to companies of all sizes,” Seabrook tells GTR. “We hope this will drive greater usage of LEIs and bring trust and transparency to the industry.”

Established in 2014 by the G20, the LEI is a unique, electronic, 20-digit standard identifier for parties in global financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’.

A relatively simple solution, it tackles several compliance and risk issues. Essentially, as trade becomes more globalised, it has become increasingly difficult for businesses to accurately identify information related to the parties they trade with, particularly when it comes to counterparties that have subsidiaries or that do business under various names. The process of acquiring this information is often a complex task, requiring a significant investment in time, money and resources.

The LEI solves for this by enabling the identification of businesses with one unique 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 organisations to know precisely who they are doing business with.

Support for the LEI has been growing in recent years. A 2019 study conducted by McKinsey found that its use could save the banking industry as much as US$4bn a year in client onboarding costs alone, while research carried out by the Asian Development Bank (ADB) in the same year concluded that the LEI was both affordable and easy to obtain by SMEs and large companies alike, and that its usage could contribute to closing the trade finance gap by making information about SMEs easier to come by.

Last year, JP Morgan became the first validation agent in the LEI system, after the role was created by GLEIF to drive adoption. This enables JP Morgan to directly embed LEI issuance into its usual client onboarding processes, which it said at the time would increase the number of LEI registrations.

However, take-up remains sluggish, with the current number of LEI registrations at just 1.88 million, up from approximately 1.7 million at the end of last year. To put that figure into perspective, in the UK alone, there are around 6 million private sector businesses, according to government data. With GLEIF saying that its current quarterly growth rate for LEI registrations is 3.3%, the end goal of issuing each legal entity in the world with an identifier remains very far off.

Last week, the International Chamber of Commerce (ICC) published a report finding that trade across the G7 could increase by US$9tn in the next five years if the industry reaches full digitalisation, and explicitly named the LEI as a “building block for successful future trade”. It called for greater incentives to encourage more SMEs to use LEIs and scale up the system, arguing that the identification code is necessary if companies are to “capitalise on the benefits of a fully digitalised trade ecosystem”.

With partnerships such as this latest one with Contour, GLEIF hopes to see an uptick in adoption. Stephan Wolf, CEO of GLEIF, says: “Increasing LEI volumes in trade finance and broadening their usage in the supply chain will solve the issue of trust in financial transactions globally. Verified legal entity identification, which can only be realised universally across international borders by LEI usage, is a core component of a well-functioning global supply chain ecosystem.”

For now, Contour says it will continue to deepen its use of LEI in the coming months, working with its partners on new APIs, and collaborating on the GLEIF-led Verifiable LEI (vLEI) initiative. A GLEIF spokesperson tells GTR that the non-profit is open to any further partnerships across all industries.