RBI Introduces Legal Entity Identifier (LEI) for Large Value Transactions
RBI

Legal Entity Identifier (LEI) is a unique 20-digit number used for identifying parties to financial transactions worldwide. It was formulated as a vital measure for improving the accuracy and quality of the financial data systems. It helps in better risk management, especially in the post-Global Financial Crisis era.

RBI has introduced LEI in a phased manner for participants in the Over The Counter (OTC) derivative and non-derivative markets. In India, RBI introduced LEI first through a circular issued in June 2017 for participants in OTC derivatives market. In November, RBI extended LEI for large corporate borrowers. In June 2020, the Insurance Regulatory and Development Authority of India issued a circular for insurers to obtain LEI.

The RBI has now introduced LEI for large value transactions through a circular on Tuesday. As per the RBI circular, the introduction of LEI applies to all payment transactions of value Rs.50 crore or more by entities using Reserve Bank run centralised payment systems, i.e. National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS). This circular applies to entities who are non-individuals. The directions issued in this circular will be effective from 1st April 2021.

Also Read: Government Tightens GST Laws for Fraudulent GST Practices

The circular provides the steps to be taken by the member banks anticipating the broader introduction of LEI across all payment transactions. The member banks should advise those entities who undertake large value transactions of Rs.50 crore or more for obtaining LEI in time. The member banks need to include remitter and beneficiary LEI information in NEFT and RTGS payment messages. They should maintain records of all transactions of Rs.50 crore or more through NEFT or RTGS.

The non-individual bank customers who initiate or receive Rs.50 crore and above through NEFT or RTGS need to obtain an LEI. The member banks will provide the LEI information in the ‘Remittance information’ field for RTGS customer payment transactions. In the case of NEFT outward debit messages, member banks will give the LEI information in the ‘Sender to Receiver Information’ field.

The body that supports the implementation and use of LEI is the Global Legal Entity Identifier Foundation (GLEIF). Any entity can obtain an LEI from the Local Operating Units (LOUs) accredited by the GLEIF. In India, the entities can obtain LEI from the Legal Entity Identifier India Ltd (LEIL). LEIL is recognised as an issuer of LEI by the RBI under the Payment and Settlement Systems Act, 2007. 

LEI facilities transparency and data accuracy within the global market. It helps entities when entering into financial transactions with other entities. With the introduction of LEI for large value transactions of Rs.50 crore and above, it will cover many entities. Thus, reducing the financial risks and speeding up the data validation process for RBI and financial service providers.

With the introduction of LEI for large value transactions, many entities will now need to obtain LEI code for their business or establishments. If you are wondering how to obtain LEI for your entity, then you need not worry. ClearTax Services will help in the issuance of LEI for all types of businesses. You can obtain LEI from our ClearTax Legal Entity Identifier (LEI) Code Services in a simple and hassle-free manner.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in

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