DECEMBER 2023
VERSION2

Global Adoption of the Legal
Entity Identifier (LEI) in ISO
20022 Payment Messages
Version 2
Previous Version – September 2021

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Global Adoption of the Legal Entity Identifier (LEI) in ISO 20022 Payment Messages – Version 2

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Payments Market Practice Group
The Payments Market Practice Group (PMPG) is an independent body of payments subject
matter experts from Asia Pacific, EMEA and North America.
The mission of the PMPG is to:
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Take stock of payments market practices across regions.
Discuss, explain, and document market practice issues, including possible commercial
impact.
Recommend market practices, covering end-to-end transactions.
Propose best practice, business responsibilities and rules, message flows, consistent
implementation of ISO messaging standards and exception definitions.
Ensure publication of recommended best practices.
Recommend payments market practices in response to changing compliancerequirements.

The PMPG provides a truly global forum to drive better market practices, which, together withcorrect use of standards, will help in achieving full straight-through-processing and improved
customer service.

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Contents
1. EXECUTIVE SUMMARY

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2. STATUS AND UPTAKE OF THE LEI

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2.1. RTGS AND NEFT - INDIA

52.2. BANK OF ENGLAND

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2.3

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ESRB (EUROPEAN SYSTEMIC RISK BOARD)

2.4. EUROPEAN COMMISSION

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2.5. FINANCIAL STABILITY BOARD (FSB)

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3. USE CASES

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3.1.

USE CASE 1 – SANCTIONS SCREENING

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3.1.1. USE CASE 1 – SANCTIONS SCREENING – DIAGRAM

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3.2. USE CASE 2 – KNOW YOUR CUSTOMER (KYC) – SCREENING FOR
CUSTOMER ON-BOARDING

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3.2.1. USE CASE 2 – KNOW YOUR CUSTOMER (KYC) – SCREENING FOR
CUSTOMER ON-BOARDING – DIAGRAM

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3.3.
3.3.1.

USE CASE 3 – CORPORATE INVOICE RECONCILIATION12USE CASE 3 – CORPORATE INVOICE RECONCILIATION – DIAGRAM 13

3.4. USE CASE 4 – CORPORATE TREASURER – FRAUD DETECTION AND
FIGHT AGAINST VENDOR SCAMS
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3.4.1. USE CASE 4 – CORPORATE TREASURER – FRAUD DETECTION AND
FIGHT AGAINST VENDOR SCAMS – DIAGRAM
15USE CASE 5 – ACCOUNT-TO-ACCOUNT OWNER VALIDATION

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3.5.1. USE CASE 5 – ACCOUNT-TO-ACCOUNT OWNER VALIDATION –DIAGRAM16

3.5.

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4. BECOMING A VALIDATION AGENT

164.1. BENEFITS FOR FINANCIAL INSTITUTIONS ACTING AS VALIDATIONAGENTS17

5. SUMMARY OF BENEFITS THAT THE LEI CAN BRING

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6. NEXT STEPS

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1. Executive Summary
The Payments Market Practice Group (PMPG) has previously published three papers on the useof the Legal Entity Identifier (LEI), which were written when the Swift MT format was still in
predominant use, meaning that the ability to utilize the LEI was limited.
With the implementation of ISO 20022 across multiple Market Infrastructures and cross-bordermessaging, the benefits of the LEI can be fully realized.

Legal Entity Identifier
A Legal Entity Identifier is a unique 20-character alphanumeric code
assigned to all entities that are counterparties to financial transactions. The
code itself is neutral, with no embedded intelligence or country codes that
could create unnecessary complexity for users.
LEIs are defined in the ISO 17442 standard.

This paper sets out to provide best Market Practices on the LEI as an identifier in payments andto provide clear use cases, with benefits for participants for more transparent, efficient andsecure payments.
The LEI provides improvements across numerous use cases - this paper provides an overview of
how the LEI can be used in the Sanctions screening space (with even more potential
improvements once the Regulators come on board and add the LEI into the Sanctions screening
lists), reducing fraud for Corporate Treasurers, account-to-account owner validation andimprovements across the industry for Know your Customer (KYC) processes.

2. Status and Uptake of the LEICountries are moving to adopt the LEI as a mandatory requirement in their ISO 20022
messages, therefore market participants will need to be prepared for this, even if there arecountries that do not mandate the LEI. This section outlines the current status of the uptake ofthe usage of the LEI across the globe.

2.1. RTGS and NEFT - India
Effective from April 1 2021, all non-individual customers initiating or receiving transactions of ₹50
crore and above through RTGS and/or NEFT1 must provide an LEI within the payment message.

1

National Electronic Funds Transfer System in India

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Technical guidance on how the LEI should be carried
In NEFT payment messages, the field 7495 is a free format optional field consisting of 6 lines
with 35 characters, each with alphanumeric options. The first two lines of this field shall be used
for capturing sender and beneficiary customer LEI information (in that order, and whereapplicable and available).
When LEI information is captured, any narrative and/or remarks, etc. shall be part of last 4 linesof the field.
The sender and beneficiary information shall be captured in following format:

In RTGS customer payment and inter-bank messages, the optional field <RmtInf> has 4 repeat
tags, each having 140 characters. The first two loops of this field shall be used for capturing
sender and beneficiary customer LEI information (in that order, and where applicable andavailable). When LEI information is captured, any narrative and remarks, etc. shall be part of thelast two repeating loops of the field. The sender and beneficiary information shall be captured infollowing format:

2.2. Bank of England
Along with Purpose Codes, LEIs will first be introduced into ISO 20022 standard CHAPS
payment messages from on an ‘optional to send’ basis. The Bank of England encourages all
CHAPS Direct Participants (DPs) to start using LEIs as early as possible, once the DP is capableof sending enhanced data. However, this will not be made mandatory until November 2024. This
allows DPs time to introduce LEIs and capabilities based on this data gradually, without the riskof incorrect LEI usage. The Bank of England will, however, monitor the use of LEIs in payments
during this optional send period.

The Bank of England will start mandating LEIs to be used under certain circumstances as ofNovember 2024, with a view to widen out the requirement to all participants over time. The Bankof England will mandate the use of the LEI where the payment involves a transfer of funds
between Financial Institutions. This will be defined by a CHAPS payment made via a pacs.009
payment message or via a pacs.008 payment message where the ultimate sender and ultimate
Global Adoption of the Legal Entity Identifier (LEI) in ISO 20022 Payment Messages – Version 2

6beneficiary are both Prudential Regulation Authority (PRA) authorized deposit-takers or brokerdealers, or a Financial Market Infrastructure supervised by the Bank of England.
Most institutions that make these payments already possess LEIs. Although not mandatory forothers at this stage, the Bank of England strongly encourages other institutions to apply for an
LEI, and to prepare and implement necessary changes, particularly where firms may already beplanning system changes, in anticipation of the Bank of England extending its LEI mandate. The
Bank of England notes that the earlier that firms adopt the LEI, the sooner they will derive its
benefits. The Bank of England will monitor the use of LEI for all transactions and will keep underreview whether the mandatory requirement to include LEI data should be extended to all CHAPS
payments.
As LEIs become more prevalent, the Bank of England will expand their requirement in CHAPS
payment messages to more users. As mentioned above, the Bank of England is working with all
relevant stakeholders to progress the uptake and implementation of LEIs in the UK.
The Bank of England also recognizes CHAPS as a useful mechanism to extend the uptake of
LEIs in the UK. The Bank of England will monitor the uptake and use of LEIs for CHAPS
payments and the rate of adoption across the wider UK economy and will use this information toreview and determine how the mandatory requirements to include Purpose Code data should be
extended to all CHAPS payments.
The Bank of England will provide industry with at least 18 months’ notice in advance of extending
any mandatory requirements for LEIs.
Information on the Bank of England’s Enhanced Data Policy, which encompasses the use of LEI,
may be found here - Additional Guidance: Detail on Mandating ISO 20022 Enhanced Data in
CHAPS | Bank of England.

2.3 ESRB (European Systemic Risk Board)
The ESRB has published a Recommendation on identifying legal entities, which holds 2 subrecommendations:
Recommendation A – Introduction of a Union framework on the use of the Legal Entity
Identifier
1. The Commission is recommended to propose that Union legislation incorporates acommon Union legal framework governing the identification of legal entities established in
the Union that are involved in financial transactions by way of a legal entity identifier(LEI), paying due regard to the principle of proportionality, taking into account the need toprevent or mitigate systemic risk to financial stability in the Union and thereby achieving
the objectives of the internal market.
2. The Commission is recommended to propose that Union legislation that imposes anobligation on legal entities to report financial information, while paying due regard to theprinciple of proportionality, include the obligation to identify by way of an LEI: (a) the legal
entity subject to the reporting obligation; and (b) any other legal entity about which
information must be reported and which has an LEI.
3. The Commission is recommended to propose that Union legislation incorporates anobligation on authorities to identify by way of its LEI any legal entity about which they
publicly disclose information, and which has an LEI, paying due regard to the principle ofproportionality, as expressed in the Recommendation.
Recommendation B – Use of the Legal Entity Identifier until the possible introduction ofUnion legislation

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Pending any action taken by the Commission to comply with Recommendation A and thepossible introduction of corresponding Union legislation, it is recommended, to the extent
permitted by law and subject to the principle of proportionality, that:
1. the relevant authorities require or, where applicable, continue to require, all legal entities
involved in financial transactions under their supervisory remit to have an LEI;
2. the authorities, when drafting, imposing, or amending financial reporting obligations
include or, where applicable, continue to include, in such obligations an obligation to
identify by way of an LEI: (a) the legal entity subject to the reporting obligation; and (b)any other legal entity about which information must be reported and which has an LEI;
3. the authorities identify or, where applicable, continue to identify, by way of its LEI, anylegal entity about which they publicly disclose information, and which has an LEI.

2.4. European Commission
On July 20th 2021, the European Commission (EC) released its AML Package. Within the
package, the EC officially recognized the value of the Legal Entity Identifier (LEI) as a uniquemechanism capable of supporting transparency within any ecosystem, by formalizing it as animportant component of future AML/CFT efforts:
1. Under the AML Regulation, Article 18 - identification and verification of the customer’s
identity, the LEI is required, where available, for the identification of a legal entity; for atrustee of an express trust or a person holding an equivalent position in a similar legal
arrangement and for other organizations that have legal capacity under national law;

2. The Revision of the 2015 Regulation on Transfers of Funds ensures that EU AML/ CFT
rules are extended beyond their current remit, to fully apply to the crypto sector. This
will ensure full traceability of crypto-asset transfers and allow the prevention anddetection of their potential use for money laundering or terrorism financing.
In Section (25), which outlines that transfers of funds or crypto-assets from the Union to outside
the Union should carry complete information on the payer and payee, a new requirement has
been introduced:“Complete information on the payer and the payee should include the Legal Entity
Identifier (LEI) when this information is provided by the payer to the payer’s service
provider, since that would allow for better identification of the parties involved in atransfer of funds and could easily be included in existing payment message formats
such as the one developed by the International Organisation for Standardisation forelectronic data interchange between financial institutions.”

2.5. Financial Stability Board (FSB)
The Committee on Payments and Market Infrastructure (CPMI) created a set of 19 building
blocks to help enhance cross-border payments.

Global Adoption of the Legal Entity Identifier (LEI) in ISO 20022 Payment Messages – Version 2

8Building block 16 - Establish unique identifiers with proxy registries
Providing a globally-standardised approach supporting the global Legal Entity Identifier for
legal entities and a similarly standardised identifier for individuals.
In 2022, CPMI published a detailed report titled "Options to Improve Adoption of The LEI, in
Particular for Use in Cross-border Payments", which explores benefits that could accrue fromthe use of the LEI in cross-border payment systems. Specifcally, the report recommends that
FSB member jurisdictions should:••••

Explore ways to promote LEI adoption, particularly outside the financial sector;
Consider mapping the LEI to domestic identifiers;
Consider adding, where appropriate, the LEI as a requirement in newly-created oramended regulations;
Consider providing guidance on using the LEI in the payment chain.

The FSB should:••

Explore synergies with the work of other building blocks in the roadmap;
Support, as appropriate, GLEIF’s initiatives to address obstacles to broader LEI
adoption.

GLEIF should:••

Continue their efforts to increase adoption of the LEI (including by non-financial
corporates), promote timely update of the LEI reference data and ensure their quality;
Increase the visibility of the LEI through public outreach initiatives, particularly outside
the financial sector.

The complete report can be accessed at: https://www.fsb.org/wpcontent/uploads/P070722.pdf

3. Use Cases
This section of the paper will outline various use cases where the LEI can be used. A description
and flow diagram for each use case is present with associated benefits and any challenges or
implications that they bring.

Global Adoption of the Legal Entity Identifier (LEI) in ISO 20022 Payment Messages – Version 2

93.1. Use Case 1 – Sanctions Screening

3.1.1. Use Case 1 – Sanctions Screening – diagram

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3.2. Use Case 2 – Know Your Customer (KYC) – Screening forcustomer on-boarding

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3.2.1. Use Case 2 – Know Your Customer (KYC) – Screening forcustomer on-boarding – diagram

3.3. Use Case 3 – Corporate Invoice Reconciliation

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123.3.1. Use Case 3 – Corporate Invoice Reconciliation – diagram

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3.4. Use Case 4 – Corporate Treasurer – fraud detection and fightagainst vendor scams

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3.4.1. Use Case 4 – Corporate Treasurer – fraud detection and fight against
vendor scams – diagram

3.5.

Use Case 5 – Account-to-account owner validation

Global Adoption of the Legal Entity Identifier (LEI) in ISO 20022 Payment Messages – Version 215

3.5.1. Use Case 5 – Account-to-account owner validation – diagram

4. Becoming a Validation AgentThis section of the document explains what a Validation Agent is and what benefits can be realized by
Financial Institutions becoming Validation Agents.
The information that FI’s gather in order to KYC and on-board clients is the same information that isrequired in order to issue an LEI (documents, data collection and verification procedures) by an LEIIssuing Organization.
Therefore (as mentioned in use case 4), there is an opportunity for FI’s to become Validation Agents,
which means they can provide LEI’s to their corporate clients in collaboration with LEI Issuer
Organization(s).
For clients and LEI Issuers, the processes to issue an LEI requires time and effort to complete. The
collection and validation and delivery of data can require several exchanges and incur periods ofprocessing between each and multiple rounds of communication. This can cause duplication
between FI and LEI issuer and cause frustration for the client due to the additional processing timeand an inconvenient customer experience.
Now that LEI is becoming a mandatory data element to be provided in payments in some countries,
there will be some clients that need an LEI in order to be fully on-boarded. In this case, an FI’s own
time-to-revenue is impacted as the on-boarding process cannot be completed until the client obtains
an LEI.
A significant opportunity therefore exists to address these issues by de-duplicating the entity
identification procedures that are currently shared between the FI and the LEI issuer.
The creation of the Validation Agent framework empowers FI’s to leverage their existing “Know Your
Customer” (KYC), Anti-Money Laundering (AML) and other regulated business-as-usual on-boarding
processes to obtain an LEI for their client when verifying their identity during the initial on-boarding or
standard client refresh update procedures.
FI’s acting as Validation Agents can liaise with the LEI issuer on its client’s behalf to validate thatthese key data checks and processes have been undertaken.

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4.1.

Benefits for Financial Institutions acting as Validation Agents•

A greatly-streamlined LEI issuance process for clients, resulting in an enhanced client
experience for on-boarding and lifecycle management;•

Digitization of its on-boarding processes based on standardized legal entity data instead of
siloed information and legacy systems;•

Additional opportunities to add client value and achieve market differentiation;•

Enhanced internal data management processes and therefore reduced costs;•

A uniquely-powerful foundation upon which to innovate and develop new digital services andrevenue opportunities.

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5. Summary of benefits that the LEI can bringGlobal Adoption of the Legal Entity Identifier (LEI) in ISO 20022 Payment Messages – Version 2

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6. Next Steps
With the LEI being a mandatory identifier that is already required within certain payments, the scopeof the payment messages that mandate LEI will increase across the communities and industry. The
LEI is part of the FSB’s approach to improving cross-border payments and is being adopted acrossMarket Infrastructures at a fast pace.
As outlined within this paper, there are true benefits that the LEI can bring to both Financial
Institutions and Corporate/Business Banking clients. It is imperative that FI’s communicate to theirclients which payments will require LEI to be present and also the benefits that they can realize once
they utilize the LEI, such as increased STP and faster more efficient payments.
In order to unlock the full benefits, Financial Institutions should take up the opportunity to become
Validation Agents, which will not only improve the KYC processes across the industry, but will also
provide their clients with the ability to use their FI as a one-stop-shop when wanting to open accounts
and obtain LEIs.
The LEI should be embraced across the industry and looked at as a great opportunity to improve,rather than represent any type of burden for Financial institutions or their Corporate/Business Banking
clients and a strong request for Regulators to support the LEI by adding it into the Sanctions lists.

To contact the PMPG or provide feedback on the content of this paper, please email info@pmpg.info

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