Global body eyes broader use of unique ID by SMEs

Cross-border payments, supply chain and trade, and ESG will drive greater adoption.

The Global Legal Entity Identifier Foundation (GLEIF) is pushing greater adoption of the legal entity identifier (LEI) — a unique code that identifies companies and organisations in global transactions — in the Asia Pacific, African and Latin American regions, especially amongst small and medium enterprises (SME) so they can build trust amongst international clients.

“The LEI and vLEI (the digital version of LEI) are quite great at ensuring that when you are on a digital platform, you are talking to the right person and the right company, so that will be a very strong use case for growth in the future,” GLEIF CEO Alexandre Kech told Asian Banking & Finance.

GLEIF emerged as the guardian of a system designed to ensure the accurate and reliable identification of parties involved in transactions in the aftermath of the 2007-2008 global financial crisis. About 67,000 unique codes were issued in the third quarter, 2.7% more than a quarter earlier and bringing the total to 2.57 million.

The LEI, which consists of 20 letters and numbers, allows each entity to be identified on a global database searchable by number instead of by name, since some groups may have a similar name. The LEI is an ISO (International Organisation for Standardisation) standard and is now a legal requirement for many global companies.

“A global standard is interesting, but if it's only used in one specific region or one specific country, it’s not really a global standard,” Kech said. “The intent of the Global LEI Foundation is to ensure, through regional presence and partnerships, that we have LEI issuers not just in Europe, where it is very well used.”

He expects cross-border payments to drive the increased adoption of legal entity identifiers especially amidst a global push against money laundering.

Here are the excerpts from Kech’s interview.

How will LEI adoption benefit organisations?
A global standard is interesting, but if it's only used in one specific region or one specific country, it’s not really a global standard. The intent of the Global LEI Foundation is to ensure, through regional presence and partnerships, that we have LEI issuers not just in Europe, where it is very well used. 

We will have a focus, for example, on Africa and Latin America, and continue our focus on Asia Pacific next year, particularly Southeast Asia, to increase the usage of the LEI in these regions, with a specific focus on SMEs. We believe that the LEI and the vLEI — the digital version of the LEI — can contribute to building trust for SMEs. 

Something they have a challenge with is how, as an SME in Africa, can I export my products? Can I find financing outside of my country? If I can't be trusted in terms of do I exist as a company or do I not exist as a company? It's very similar in environmental, social, and governance (ESG), where SMEs will have to provide reporting around their ESG practices in the future. It's to identify themselves and  to be able to source the data they provide. We believe that the LEI is also quite a good standard that is recognized globally, and it should bring some interoperability and some cost savings for those small companies as well.

Which sectors will benefit the most from wider legal entity identifier adoption?
We see three main areas of growth — cross-border payments, supply chain and trade, and ESG. We probably see payments to move first because of the anti-money laundering requirements. 

The Financial Action Task Force is also recommending the use of the LEI in that context because of fraud issues in the payment space. The LEI and vLEI are quite great at ensuring that when you are on a digital platform, for example, you are talking to the right person and the right company, so that will be a very strong use case for growth in the future. 

On the supply chain, it's a bit more complex, because there are more players involved — shippers, buyers, importers. It is a very complex environment. So there, we definitely rely a lot on the ICC (International Chamber of Commerce) and specifically the Data Standards Initiative, which are actively promoting the digitalisation of trade documents. And as part of that, you obviously now need to also have standards for identifying who is involved in that transaction. It will probably take longer to pay, but it will definitely contribute to the growth of LEI.

What are the new capabilities of the digital counterpart of the LEI?
The vLEI is one of the main reasons why I joined GLEIF as the new CEO. I come from the blockchain industry, where the concept of self-sovereign identity and verifiable credentials came from. It's a very strong concept in the sense that it enables individuals to identify themselves on digital platforms and to receive credentials to perform things without having to always reveal their identity or holder data. For example, credentials could be issued to say “I'm more than 18 years old, so I can buy alcohol, but I don't have to show my ID card with all my details.”

So that type of concept is quite strong, also for organisations, as long as it's built with organisations in mind, and that's what the vLEI is. It's a digital identification of a company to allow them to authenticate themselves on digital platforms and to present themselves on digital platforms in a verifiable way and avoid impersonation that we see a lot in our digital world today. You know, companies and people pretending to be [someone else]. ‘Netflix’ sends you a message telling you you forgot to subscribe, to renew your credit card details, then you give your credit card details and you get robbed. So that type of authentication is very important. 

What is important with the vLEI, it also allows organisations to identify the people who act on behalf of the organisation in an encrypted, linked way, meaning that I can issue a credential to my CEO, my CFO, to digitally sign a contract, to sign on platforms on behalf of the company, in a way that is verifiable by anybody, anywhere on the planet. And that's critical because today, you can do things digitally. I do have a digital certificate that I use in DocuSign, for example, to sign contracts, but it's only linked to me, not to me and the company. The vLEI really brings in my context. My credentials identify me, my role, and the company I'm working for. And if tomorrow I'm fired — it could happen — GLEIF disables and revokes the credential automatically. So it's an extra level of security, an extra level of trust that we can bring to digital platforms through the LEI and vLEI, and that's really what we will be working on in the years to come, with a lot of many, many use cases.