As digital payments expand, the importance of maintaining secure, transparent financial transactions grows. One essential element in ensuring such transparency for large transactions in India is the Legal Entity Identifier (LEI).
In this blog, we’ll explore what LEI is, its applications, and the recent updates in LEI requirements for large value transactions in centralized payment systems like NEFT and RTGS.
What is the Legal Entity Identifier (LEI)?
The Legal Entity Identifier (LEI) is a unique, 20-character alphanumeric code used worldwide to identify entities engaged in financial transactions. Its primary purpose is to increase the accuracy and transparency of financial reporting and to assist in risk management, allowing regulators and financial institutions to better understand who is involved in which transactions.
The LEI system is managed globally by the Global Legal Entity Identifier Foundation (GLEIF). In India, LEIs can be obtained from Legal Entity Identifier India Ltd. (LEIL), accredited by both GLEIF and the Reserve Bank of India (RBI).
For instance, if a company named ABC Ltd. wishes to conduct a major transaction through RTGS, obtaining an LEI would ensure their transactions are traceable and transparent for regulatory scrutiny, reducing financial risks.
Which Transactions Require an LEI?
LEI requirements apply specifically to large single transactions of ₹50 crore and above, for both remitters and beneficiaries, when conducted by non-individual entities. These transactions should carry both the remitter’s and beneficiary’s LEI details. This is mandatory for transactions via NEFT (National Electronic Funds Transfer) and RTGS (Real-Time Gross Settlement) systems.
Examples:
A Corporate Payment: XYZ Pvt Ltd., initiating a single NEFT transfer of ₹55 crore to another business, would need to include both parties' LEI details.
Inter-Bank Transfers in RTGS: If two banks transfer ₹50 crore or more in an RTGS customer payment or inter-bank transaction, LEI details are required.
It’s important to note that these requirements are not necessary for individual-to-individual payments, even if the transaction amount is ₹50 crore or above. However, when either the remitter or the beneficiary is a non-individual, LEI details must be included.
Exceptions to the LEI Requirement
Government bodies and departments are not required to obtain or include LEI numbers for payments. However, if a government-owned corporation or public sector undertaking makes a transaction of ₹50 crore or more, they must include LEI information for both parties involved.
Populating LEI in NEFT and RTGS Messages
For NEFT transactions, the LEI details should be recorded in the “7495” field in a specific format:
Line 1: SL/LEI of Sender/
Line 2: BL/LEI of Beneficiary/
For RTGS messages, the LEI data should be in the “<-RmtInf->” field:
Loop 1: /SL/LEI of Sender/
Loop 2: /BL/LEI of Beneficiary/
This standardized format ensures consistency and makes it easier for financial institutions to retrieve LEI information efficiently.
Entities That Should Record LEI
LEI must be recorded for all NEFT/RTGS transactions involving non-individual entities. This includes companies, limited liability partnerships, trusts, and other non-individual business forms. A detailed list of these entities is provided on the LEIL website.
For inward transactions, banks should capture the LEI details of both the sender and the beneficiary. While transactions with incomplete LEI details should not be rejected by the receiving bank, both the sending and receiving institutions are responsible for ensuring that valid LEI information is recorded for transactions of ₹50 crore and above.
Example Scenario:
A company, PQR Ltd, receives an inward NEFT transaction of ₹60 crore. If the remitting bank has included valid LEI details for both PQR Ltd and the sender, the beneficiary bank should process the transaction and maintain accurate records of the LEI details.
LEI Applicability for Bank-Initiated Transactions
Transactions initiated by banks for purposes such as internal payments, loan disbursements, term deposits, maturity proceeds, and account closure do not have unique LEI requirements. For these transactions, refer to the general guideline requiring LEI for any large-value transactions where both the sender and recipient are non-individual entities.
LEI in Web-API and Other Payment Systems
LEI details are to be recorded across all payment channels, including Web-API and payment originator modules used by RTGS. Thus, any financial institution leveraging these platforms must comply with LEI requirements for large transactions in a standardized format.
Why LEI Matters: Key Benefits
Enhanced Transparency: With LEI, regulators and financial institutions can quickly identify parties in large transactions, making it easier to assess potential risks.
Standardization: LEI requirements help create a standardized system, reducing the chances of financial fraud and ensuring consistency across payment platforms.
Risk Mitigation: By accurately identifying transaction participants, LEI enables banks and regulators to better monitor large financial flows, minimizing systemic risks.
In conclusion, the LEI system adds an important layer of transparency and efficiency to large-value transactions in India, aligning with RBI's broader goals for secure and traceable financial activities. For companies and entities engaged in high-value transfers, understanding LEI compliance is crucial for smooth transaction processing.
If you need assistance in obtaining an LEI number, feel free to contact us. We're here to help you streamline your compliance needs!
Source: RBI
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