Back in 2008, the world faced an intractable global financial crisis. The unprecedented turbulence triggered by the collapse of Lehman Brothers shattered faith in the world’s financial institutions, paralysing markets. Two fundamental questions arose — how did this happen and how can we prevent it from happening again?
The world’s regulators recognised the challenge that lay behind these questions. The inability to identify parties to transactions across markets, products, and regions was inhibiting the ability to understand and evaluate emerging, systemic risks. Their answer? Develop a universal means of identifying legal entities engaged in financial transactions, the Legal Entity Identifier (LEI), as a ‘broad public good’, for the benefit of both the public and private sectors.
At no point in history have there been greater incentives for businesses to trust and be trusted. Nevertheless the opening pages of the 2024 NASDAQ Global Financial Crime Report makes for grim reading. In 2023, it says, more than an estimated US$3.1 trillion in illicit funds flowed through the global financial system. US$782.9 billion is ascribed to drug trafficking, US$346.7 billion to human trafficking, and US$11.5 billion to terrorist financing. Losses to fraud scams and bank fraud schemes totaled US$485.6 billion.
Today, the global digital economy is grappling with unprecedented levels of identity-related fraud. In the United States alone, cybercrime costs reached an estimated US$320 billion as of 2023, according to Statista.
Projections suggest that this upward trend will continue, with cybercrime costs potentially reaching around US$1.82 trillion by 2028. This surge in digital crime is not only causing substantial financial losses worldwide but is also eroding trust between counterparties, especially those operating across borders and diverse legal systems.
In an era of escalating digital threats, secure, reliable, and globally recognised organisational identities are essential for fostering global trade.
Global LEI system
It is no exaggeration to say that the Global LEI System has revolutionised how legal entities are identified and tracked globally. This has been made possible through the collaborative efforts of the Financial Stability Board; the Regulatory Oversight Committee (ROC), which comprises representatives from public authorities worldwide to ensure effective governance; and the LEI issuing organisations which serve as the primary interface for legal entities wishing to obtain an LEI.
Ten years on, GLEIF and the LEI ecosystem have left an indelible mark on the financial ecosystem in pursuit of a singular vision — one global identity behind every business. Together, we have contributed to a safer, more transparent economy that has undoubtedly transformed the market for the better.
Building a safer, more transparent global economy
The LEI is at the heart of GLEIF. It is an ISO-standardised, 20-digit alpha-numeric code connected to a verified business registration and information record in the Global LEI Index — a data bank maintained by GLEIF and made available to everyone, everywhere, free of charge.
No two LEIs are ever the same. One LEI represents one legal entity. This means that anyone, anywhere in the world, can cross-reference who an organisation claims to be, together with its ownership structure and subsidiary relationships, against a legitimate and verified data source.
GLEIF’s myriad achievements are best encapsulated by the 2.7 million legal entities around the world that use their LEI to identify themselves internationally. Global adoption continues to grow, enabled and bolstered by an expanding network of stakeholders, including validation agents, LEI issuers, and mapping partners, all underpinned by GLEIF’s commitment to optimising data quality, reliability, and usability.
This is translating into growing recognition of the LEI’s unique capacity to bring increased trust and transparency to multiple applications, such as fighting financial crime, simplifying complex and opaque supply chains, and facilitating global trade.
Yet challenges remain. Yes, the digitalisation of business models and industries is creating unparalleled opportunities for economic and social betterment. Yet these opportunities depend on organisations being able to trust in the authenticity of their customers, partners, and suppliers, wherever they are in the world. And confidence in digital authenticity remains in short supply. Compounding this problem, recent technological advances — including the rapid proliferation of artificial intelligence (AI) — are presenting seismic new challenges.
As levels of global business cooperation and competition continue to increase, so too does the need to establish a universal and trusted way for counterparty organisations and their key representatives to verify their identities digitally. Solving this problem is now critical to the health, stability, efficiency, and viability of the global digital economy.
Hardwiring digital trust into every relationship
GLEIF has already assumed a leadership role in this regard. In 2022, it introduced the digitally trustworthy version of the LEI, the verifiable LEI (vLEI), to address the urgent global need for digitised, automated authentication and verification of organisations across a broad range of industries. Using decentralised, tamper-resistant cryptography, the vLEI enables any company to digitally bind its LEI code to transactions and other official interactions, and to further supplement it with verified identity data of the authorising role-holder.
As GLEIF enters its second decade, its focus will be on expanding the value of the Global LEI System as a ‘broad public good’ by hardwiring digitally verifiable organisational identity, and therefore trust, into every business relationship.
Achieving this will make the ‘business of doing business’ more straightforward, and the positive effects will ripple across the world. Universal LEI and vLEI adoption will equip businesses, large and small, with a passport that enables them to trade with trust across borders, opening up markets and new opportunities. By helping to address a range of global challenges including, among others: financial and corporate fraud; financial exclusion; friction in international capital flows; the burden of environmental compliance; money laundering and the financing of terrorism, international trade will be eased, and economic growth accelerated.
Realising this vision is no easy task
It begins by driving broader LEI coverage across all regions. Extending GLEIF’s ‘on-the-ground’ engagement and collaboration in regions where the LEI is currently underrepresented will enable local businesses to have better access to GLEIF’s expertise and knowledge. At the same time, it will deepen GLEIF’s understanding of how the LEI can deliver market-specific value, in line with regional business and regulatory priorities.
Equally important is the need to raise awareness of how the LEI ecosystem has evolved beyond capital markets compliance. The organisational identity offering enabled by the LEI and vLEI can fuel innovation, evolution, even transformation, across all sectors and beyond mandates. Here, GLEIF’s close engagement in, and collaboration with, key sectors will allow us to instil a deeper understanding among future beneficiaries. Substantial inroads have already been made in the field of cross border payments. This will continue to be a focus, together with the supply chain, Web 3.0 and ESG sectors, where innovative LEI and vLEI deployments in all and any use cases will be championed.
Finally, the rapid digitalisation of businesses has given rise to many new identity-based risks, many involving digital fraud and impersonation. The vLEI and its supporting infrastructure have been designed to combat these risks by enabling the identities of an organisation and its official representatives to be verified across digital channels. Indeed, individuals credentialled with a vLEI can prove their authenticity both in business-to-business scenarios and where permissible, within the broader public domain. This is advantageous in many trusted identity-dependent situations including, for example, engagement in retail, education, or government services. And because GLEIF, which sits as the root-of-trust for all vLEIs, operates independently of geopolitical, technological, and commercial influence, the system itself can also be trusted by everyone, everywhere.
The next phase of LEI adoption will be transformative. In the digital era, identifiability equals empowerment. Identifiability will bring us closer to a world where every transaction is a testament to trust, where organisations thrive in a safer environment, and where transparency is an expectation, not an exception. Only then can the world’s organisations work together in ways that will unlock the true potential of digitalisation: enabling innovation and collaboration to thrive unlimited by geography, and by allowing money, goods, and services to flow securely around the world faster, more efficiently, and at a lower cost than ever before.
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