RBI mandates ‘Legal Entity Identifier’ for Cross-Border Transactions of ₹50 Crores & above w.e.f. 1 October 2022

By December 16, 2021 No Comments

The Reserve Bank of India (“RBI“), vide its Circular No. RBI/2021-22/137 A.P. (DIR Series) Circular No. 20 dated 10 December 2021, has made the Legal Entity Identifier (“LEI“) mandatory for cross border transactions / capital or current transactions of ₹50 Crores and above w.e.f. 1 October 2022.

LEI is a 20-digit alpha numeric unique number used to identify parties to financial transactions worldwide to improve the quality and accuracy of the financial data systems for better risk management. It is used to create a global reference data system that uniquely identifies every legal entity in any jurisdiction that is party to a financial transaction. 

LEI has been introduced by RBI in a phased manner for participants in over the counter (OTC) derivate, non-derivative markets, large corporate borrowers and large value transactions in centralized payment systems.

Starting from 1 October 2022, AD Category I banks shall obtain LEI number from the resident entities (non-individuals) intending to undertake capital or current account transactions of ₹50 crore and above (per transaction) under FEMA, 1999. However, AD Category I banks may encourage such entities to voluntarily furnish LEI while undertaking the specified transactions even before 1 October 2022. Further, AD Category I banks may process transactions with non-resident counterparts/overseas entities, in case of non-availability of LEI information, to avoid disruptions.

As soon as an entity has obtained an LEI number, it has to be reported in all transactions of that entity, irrespective of the transaction size. AD Category I banks have been requested to keep in place the required system to capture the LEI information and be certain that it’s validated against the global LEI database available on the website of the Global Legal Entity Identifier Foundation (“GLEIF”), which is established by the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system. Entities can receive LEI from any of the Local Operating Units accredited by the GLEIF, the body tasked to support the implementation and use of LEI. In India, LEI might be obtained from Local Entity Identifier India Ltd., which is also recognized as an issuer of LEI by RBI under the Payment and Settlement Systems Act, 2007.

All single payment transactions of ₹50 crore and above undertaken by entities (non-individuals) should include remitter and beneficiary LEI information. This is applicable to transactions undertaken through the NEFT and RTGS payment systems. LEI is not required for customer transactions where both remitter and beneficiary are individuals. For transactions, where either or both parties are non-individual/s, LEI will be required.

Since LEI uniquely identifies legal entities at the global level, it can act as an important tool for reducing financial contagion and promoting financial stability by helping in evaluating systemic risks and adopting remedial measures. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’, therefore the publicly available LEI data pool can be regarded as a global directory, which can greatly enhance transparency in the global marketplace. Introducing LEI in a phased manner by RBI shows that it is cautious and has thoughtfully planned the implementation to avoid chaos and confusion. It is assumed that LEI will not only enhance transparency but will also contribute to ease in doing business encouraging foreign entities to invest more in Indian markets

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