The year was 2008 and stock markets all over the world were cratering. The U.S. housing market was in utter turmoil.
Banks and insurance companies and other agencies moved and traded mass amounts of value across the collapsing financial markets, trying desperately to stave off what would become the worst financial crisis in the United States since the Great Depression.
They failed. And in the aftermath of all this trading and selling and buying, something big was missing: there was no uniform identifying number attached to the players involved.
So tons of financial transactions were taking place — homes were being sold to banks, credit companies were buying out mortgages — but it was nearly impossible to identify every company involved with every transaction, as well as what their role was.
Imagine working in financial risk during this crisis. Your job? Identify which company carried the most risk in a complex, 10-step financial transaction made up of just as many companies.
You suspect that Bank A is carrying the most risk, and is also cutting corners and doing something that endangers the other nine companies involved. Bank A needs to be contained.
With a uniform identifying number, you’d be able to see, in your database, that Bank A has conducted dozens of transactions of this nature. You could take swift action based upon this info. Without the number, you may never see the info. And Bank A would continue doing what they’re doing, and putting other companies — and individuals — in financial danger.
A Legal Entity Identifier (LEI) is a 20-digit number given to legal entities using the financial markets to buy, sell or trade. What defines a legal entity? Almost any business using the financial markets for transactions. Here’s what’s attached to each LEI number:
- Official name
- Address of legal formation
- First LEI assignment date
- Last updated date of LEI
- Expiration date of LEI, if applicable
- Reason for expiry. If applicable, display the acquired or merged entity’s LEI
- Official business registry where the foundation of the legal entity is mandated to be recorded on formation of the entity, where applicable
- The reference in the official business registry to the registered entity, where applicable
That number is meant to enhance the KYC (know your customer process). It provides two types of key information “who is who” and “who owns whom”.
Ultimately, an LEI number is designed to build trust. And it lasts the entire lifetime of whatever company has it. This means that if an insurance company gets their LEI number early on, that number stays with that insurance company, whether it is in business for 5 years or 500 years.
At XYO, we love helping companies build trust. In fact, our blockchain location network is trust, personified!
In our partnership with LEI.info, the plan is to provide location verification to the LEI verification process. It’s another layer of trust for LEI, and another way for us to show how our location network can enhance trust in the financial markets.