In the world of modern economy and digitization, doing business means connecting with different people, organizations, and systems regularly globally. With the advent of the internet, companies have focused on enhancing their presence online. The increase in the number of websites, the social media presence, and the growth of several platforms has facilitated the exchange of money around the globe. The money is being traded-in stocks, shares, and online transactions, which has increased exponentially. This new era has brought in many benefits, but it has also brought multiple challenges and issues which need to be overcome. The biggest challenge the digital economy faces is that of digital identity.
Who are we dealing with online?
When the Lehman Brothers collapsed in 2008, the world went into a profound shock. Nobody expected that to happen, which led to a massive crisis in the financial institutions considering their diversified business across borders. This led to a need for a system that could quickly identify which company belongs to whom and which shares belong to whom, the subsidiary of the companies, the pension schemes, the holding companies, and the investment funds. The G20 Summit 2011 was resolved with the idea of generating a digital identifier for every entity in the global system of finances. The purpose of the summit was to bring out a stable identifier to reduce the risks and enhance the system’s transparency.
The global system being put forward was the Global Legal Entity Identifier System (GLEIS). This would help create transparency in the financial system and offer new codes for all the legal entities and participate globally in different transactions. In addition, this allowed any company which was legally registered to get that Legal Entity Identifier (LEI) code.
The LEI codes are assigned to the legally registered companies to ease the identification of their financial transactions. The LEI code is a 20 digit character and alpha-numeric principle based on ISO standard 17442, connected to the critical reformation to identify the entity as unique and unambiguous. The LEI code contains:
- The ownership of the entity.
- Information regarding the basic details of the entity.
- The answers to the questions such as who is the owner and who owns what.
This information is used for operational purposes. For example, the LEI code registration and renewal process could easily be carried out at the Liezone, which offers the fastest and most reliable service at all times.
How Is the Legal Entity Identifier Creating a More Secure and Transparent Global Digital Economy?
The LEI codes have been out of great use for the financial institutions that had no digital presence initially. This offers transparency and reduces the chances of fraud, identity theft, money laundering, abuse of the market, and fake identity. In addition, the LEI codes provide a great way to know whether you are dealing with a legit company or not. The major areas where LEI codes have enhanced the trust and performance of the system include:
The LEI codes were first introduced in the regulatory compliance sector of financial institutions such as ESMA and SFC. Another set of guidelines, such as EMIR, MiFID 2, CSDR, and SFTR, came into existence when there was a need to fortify the worldwide economy and normalize how the transactions were being processed. This allowed the LEI codes to identify different companies and their counterparts for successful business processes.
The LEI codes could be easily implanted into the SSL Certificates that protect the companies and different websites. PKI programming permits the organizations and associations to distinguish themselves in some random transactions. LEI codes add a layer of legitimacy proof to the first PKI guaranteeing trustworthy online exchanges. It does this by ensuring that no element can “pass off” as another substance to submit personality misrepresentation. LEI codes are novel and cannot be changed by anyone, reducing the chances of errors and thefts.
The LEI code numbers and the Blockchain usually are supplementing frameworks. The two look to build trust, decline frauds and achieve a safer, straightforward, and solid setup in terms of information. Any blockchain-based LEI framework would make it challenging to execute standard types of financial mishaps. This would expand the confidence in the information provided by the specialists, complete the LEI information permanently, decentralize the responsible interaction, and increment versatility to the challenges faced by the frameworks.