The Risk of a Lapsed Legal Entity Identifier (LEI)

How to avoid a Lapsed LEI Code

The Legal Entity Identifier system currently has around 1.7 million LEI codes in its database. As much as 30% of these are lapsed. Having a Lapsed LEI can have serious consequences if your regulator or financial intermediary requires the LEI to be active.

A lapsed LEI can incur penalties such as blocked or delayed trades, financial penalties or fines.

Renew a lapsed lEI

trANSFER LEI

LEI Codes require annual renewal

The Legal Entity Identifier is the only global identifier that allows users to view when the data was last updated/renewed. This allows regulators, banks and financial institutions to have trust that the data contained within an LEI record is not only accurate but up to date.

All Legal Entity Identifiers (LEIs) require annual renewal, when an LEI has been renewed in the last 12 months the status of the LEI shows a green icon indicating the LEI is active, and can be trusted. However, if the LEI has not been renewed it will show a red icon and be labelled as ‘LEI lapsed’. This would indicate that the LEI could contain outdated data and in some cases it can have grave consequences

The Risk of having a Lapsed LEI

In October 2020, The Commodity Futures Trading Commission announced that it has filed and settled charges against Morgan Stanley. The charges come after inaccurate swap reports, including failure to complete Legal Entity Identifier requirements amongst other infractions.

The CFTC fined Morgan Stanley to the tune of $5 Million USD. Upon further investigation, we noticed that Morgan Stanley Capital Services LLC actually had allowed their LEI to lapse between the years 2013 to 2018.

In 2017, CITI Bank was also fined by The CFTC due to Legal Entity Identifier failures. According to the CFTC Citi failed to report LEIs accurately for thousands of swaps and trades and fined CITI to the tune of half a million US Dollars.

Why do I have to renew my LEI?

The LEI is a requirement in many regulations across the world, and most regulations require the LEI to be active.

If a legal entity fails to renew and re-certify its LEI registration by the ‘Next Renewal Date’ stated with its LEI reference data, then the registration status of this LEI will be set from ‘issued’ to ‘lapsed’.” – GLEIF

Legal entities who are behind with their LEI renewals risk losing business as counterparties may refuse to engage in business with an entity who has a lapsed LEI, and also face being sanctioned for non-compliance in accordance with LEI regulations.

Funds and trusts require the LEI since 2018 with the introduction of MIFID 2. LEIs under these entity types tend to lapse because the LEI may be needed to begin trading, or conduct a single transaction. It then may not be necessary to keep it active and they view the LEI as fulfilling a single use purpose.

This is also the case with medium to small sized companies. They may be asked to get an LEI by their investment service provider or manager in order to complete a specific trade. The LEI may just be a one time requirement here. If the needs arises for another transaction, they will surely renew their LEI or face a delay or blocked trade.

While some regulations may be relaxed on the renewal aspect of the LEI, ESMA confirmed that EU Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) both require market participants and investment firms must maintain have an active LEI by conducting annual LEI Renewals.

Read more about how to renew an LEI here.

Why do Lapsed LEIs happen

Management. In larger organisations with large amounts of subsidiaries where each entity needs an LEI often there is no central point of management. That is why it is smart to oursource group management of LEIs to a registration agent. Often people change roles in companies, and the person who registered the LEI initially may have moved or not left details of where the LEI is registered, meaning it can slip between the cracks.
Lack of knowledge or awareness that the LEI needs to be renewed.
Lack of knowledge that they can outsource to a registration agent who will ensure the LEI does not lapse and focus on maintaining the LEI professionally.
Don’t need to renew unless they need to conduct a trade/swap/sale
Compliance misunderstanding. See a list of LEI regulations here.

What to do if your LEI has Lapsed?

How to avoid a Lapsed LEI

1. Purchase automatic annual renewals. This way the card will be automatically debited each year and the LEI automatically renewed. The caveat with this is to ensure that the card on file remains active and is not cancelled in the course of the year, as this would likely result in a failed payment and thus a Lapsed LEI.

2. Multi-Year LEIs: You can now purchase an LEI for up to 5 years. This comes at a discounted rate and guarantees that your LEI will be renewed annually for the next 5 years. This is the single best way to avoid an Lapsed LEI.

3. Working with a reliable and trusted partner such as LEI Worldwide will ensure you can maintain close contact with your LEI service provider, and avoid any lapses in communication ensuring your LEIs are maintained to the highest possible standards.

Check up on your LEI Codes status to ensure it is active by using the LEI Search Look Up tool.

5 Main reasons you should renew your LEI

1. Risk of non-compliance - As mentioned above LEI renewal is a requirement under many legislations across the globe. By having a lapsed LEI you risk financial penalties, reputational damage and losing business.

2. LEI Record history is immutable – Should your LEI code inadvertently lapse, this will be permanently recorded in the history section of the GLEIF LEI database. Subsequently anybody viewing the LEI Code with interest will clearly be able to see that your LEI was allowed to expire, as is the case with Morgan Stanley.

3. Trust – By having an active LEI business partners, banks, and counterparties can clearly see you have maintained your LEI and they can trust your identity. This could be the difference between a successful deal, or no trade.

4. Contributing to a more transparent system – By renewing your LEI annually you contribute to an up to date LEI ecosystem which is trusted by hundreds of regulators, thousands of financial institutions and millions of legal entities. This makes helps mitigate risk, enhance AML efforts, reduce fraud and speed up KYC processes on a global scale.

5. Easy and affordable – Renewing an LEI is very simple. If you would like to check up on your LEI please use our search tool. Simply search by name or LEI number for your entity. This unique tool offers the possibility to renew at source, if your LEI is appearing as lapsed simply click the Renew Here button and submit the application.

What to do if your LEI has Lapsed...

In the case that your LEI has lapsed, not to worry, it can be re-activated relatively quickly. But move fast...

How to renew a lapsed LEI in 5 easy steps

1. Simply click the renewal button on the home page or below.

2. Enter the details of the LAPSED LEI.

3. Proceed to checkout, choose one of the 3 renewal options.

4. Submit your application which will be reviewed by our registration team.

5. If this LEI was originally registered with another service provider it will need to be imported first.

RENEW MY LEI

Facilitating the global allocation of LEI numbers.

LEI Worldwide facilitate entity identification in the global financial system, capital markets and private sector. We make the process accessible and simple for Legal Entities to obtain Legal Entity Identifier numbers. By doing this we help facilitate the global allocation of LEI numbers. It is our mission to be the one point of contact globally between Legal Entities & LOU’s and ensuring the LEI becomes the Worlds most important identifier.