JP Morgan has become the first validation agent in the global legal entity identifier (LEI) system, after the role was created last month by the Global Legal Entity Identifier Foundation (GLEIF), a not-for-profit organisation set up to support the implementation and use of the LEI.

Established in 2014 by the G20, the LEI is a unique, electronic, 20-digit standard identifier for legal entities participating 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’.

Simply put, the publicly available LEI data pool can be regarded as a global directory, which – if fully implemented – would solve for several pain points in trade, according to a study carried out by the Asian Development Bank (ADB) last year. According to the multilateral, by easing the flow of information about companies, the LEI can help banks conduct know your client (KYC) due diligence, as well as mitigate the risk of correspondent bank relationships being cut, and increase access to finance for SMEs in emerging markets by making information about them easier to come by.

However, until now, take-up has been slow, with companies only registering for an LEI when forced to by regulators, such as for over-the-counter derivatives transaction reporting in India.

With this new development, JP Morgan can now directly embed LEI issuance into its usual client onboarding processes, which it says will increase the number of LEI registrations – which currently stand at around 1.7 million.

“Working as a validation agent will allow us to improve our client onboarding experience as well as create valuable industry LEI reference data,” says George Brandman, managing director of reference data strategy for JP Morgan. “If a majority of financial institutions implemented this service, it would greatly multiply the number of LEIs in production to the benefit of all.”

Because the LEI registration process calls for the same sort of client data as that used by banks in verifying customer identity as part of their normal KYC and AML procedures, the process is straightforward and involves no additional steps, Stephan Wolf, CEO of GLEIF, tells GTR. “During client onboarding or client refresh updates at a bank, validation agents can now include a checkbox on the documents that the client presents, authorising them to take care of their LEI. It’s very simple,” he says.

According to GLEIF, JP Morgan will be the first of many institutions to take on the validation agent role, with others in its Globally Important Financial Institutions (GIFI) relationship group likely to follow soon. “As always in these kinds of things, you need someone to go first in order to set an example, and having the largest bank doing that is a clear signal to the market,” says Wolf. “We have a process for onboarding validation agents, and multiple institutions are currently at different stages of that process. JP Morgan has led the pack as the first, but we assume that they will not be the only one.”