Table of Contents

• Regulatory framework
• What the LEI Code is
• The LEI Code in KYC
• Relationship between LEI Code and Anti-Money Laundering

This article explores how the LEI Code can be useful within the context of anti-money laundering regulations, highlighting its benefits for regulatory compliance and fraud prevention.

Regulatory Framework

Companies and other legal entities that carry out operations relating to certain categories of financial instruments, are required to obtain an LEI Code by law (Directive 2013/65/EU Mifid II, updated by Directive 2016/1034 and European Regulation 600/2014 Mifir).

Within the context of anti-money laundering regulations, the LEI system is crucial for the clear identification of the legal entities involved in every financial transaction. This is because the LEI Code incorporates key information relating to the legal entity and its corporate structure, answering the questions “Who is it?” (Reference Data) and “Who owns whom?” (Parent Data). This essential data forms the reference index for the LEI System, a public database that is managed and made available by GLEIF (Global Legal Entity Identifier Foundation).

What the LEI Code is

The LEI Code is a unique alphanumeric sequence that identifies legal entities involved in financial transactions. Each legal entity is assigned a single LEI Code which can be recognised at international level. The main aim of the LEI Code is to standardise identification of the parties involved in financial transactions at a global level, reducing systemic risk, increasing transparency and supporting banks and financial institutions to be compliant with reporting requirements.

The LEI Code in KYC

LEI codes are also of fundamental importance in Customer Due Diligence (CDD), the process followed by financial institutions to obtain and assess information on their clients. The CDD is essential to achieve a high standard of Know Your Customer (KYC), a key requirement of anti-money laundering regulations.

The LEI Code guarantees the transparency of relations between counterparts in various sectors, including financial services, the supply chain, commercial finance and payments. It is a system that is structured and recognised at a global level, replacing fragmentary information, simplifying commercial and financial transactions and making them more efficient.

Relationship between LEI Code and Anti-Money Laundering

The LEI Code is crucial for the anti-money laundering (AML) system for various reasons:

Transparency and traceability

The LEI Code improves the ability to trace financial transactions, above all cross-border transactions, as a legal entity with an LEI Code can be identified at a global level.

Regulatory compliance

Financial institutions use the LEI Code to guarantee compliance with AML regulations, as the unique identification of the entity helps to satisfy due diligence requirements, including the clients and other parties' identity verification.

Fraud prevention

The use of the LEI Code reduces the risk of fraud, allowing more effective traceability and verification of transactions.

Operational efficiency

Integration of the LEI Code in corporate processes makes the legal entities verification automatic, thus reducing operating costs and improving the efficiency of compliance operations.

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