LEI, ISIN, and Corporate Action Announcements: The Essentials
Finance, securities and banking markets are subject to more - and more stringent - regulations each year. The aim of these regulations is to reduce systemic risk and bring increased transparency to the financial markets.
Europe now has one of the most advanced regulatory frameworks in the world. It is home to some of the worlds’ largest securities markets, fund administration centres such as Ireland and Luxembourg and also the largest Central Securities Depositories.
U.S. institutions are increasingly adopting global systems like LEIs, and expanding their use beyond financial markets to other regulated sectors like energy.
China and other APAC countries are also increasing their adoption and use of LEIs in financial institutions and beyond.
Clearly, organizations and regulatory bodies worldwide recognize the benefits of using International Securities Identification Numbers (ISINs), Legal Entity Identifiers (LEIs) and Corporate Actions (CAs).
But what do you really need to know about LEIs, ISINs and CAs? We’ve assembled 124 facts and relevant points for you to read, absorb and share!
Legal Entity Identifiers
- The global LEI system was developed at the direction of the G20 group and the Financial Stability Board (FSB) following the 2007-2008 global financial crisis.
- The purpose of the LEI system is to uniquely identify an entity and its ownership structure, answering the questions of:
- Examples of eligible legal entities include, without limitation:
- All financial intermediaries
- Banks and finance companies
- All entities that issue equity, debt or other securities for other capital structures
- All entities listed on an exchange
- All entities that trade stock or debt; investment vehicles, including mutual funds, pension funds and alternative investment vehicles constituted as corporate entities or collective investment agreements (including umbrella funds as well as funds under an umbrella structure, hedge funds, private equity funds)
- All entities under the purview of a financial regulator and their affiliates, subsidiaries and holding companies
- Sole traders (as an example of individuals acting in a business capacity)
- Counterparties to financial transactions
- Four principles underlying the LEI system:
- It is a global standard
- A single, unique identifier is assigned to each legal entity
- It is supported by high quality data
- It is a public good, available free of charge to all users worldwide
- LEIs are issued by GLEIF-sanctioned firms and institutions called Local Operating Units (LOUs), under strict guidelines and oversight. There are currently 39 LOUs listed on the GLEIF site, many with authorization to issue LEIs in multiple countries or regions.
- In September 2020 the GLEIF also introduced the concept of Validation Agents (VIs), enabling financial institutions to work directly with LOUs and their own clients to streamline customer onboarding, and diversify their use of the LEIs as they look to digitize their business processes.
- The identifier itself is formatted as a 20-character, alpha-numeric code based on the ISO 17442 standard
- Characters 1-4 identify the Local Operating Unit (LOU) responsible for issuing the LEI
- Characters 5-18 uniquely identify the legal entity
- Characters 19-20 provide an error checking/data validation function
- The data contained in LEIs can be verified by both humans and machines.
- The LEI number is published on the GLEIF site along with entity information such as company/organization name, address, where they are registered, and whether they are a branch, or owned by another ‘parent’ company.
- The LEI system incorporates the concept of a Direct Parent, and an Ultimate Parent – the parent of all parents. This direct linking provides significant transparency into the complex, global organizational structures and the potential risk therein.
- The entire LEI database is open and accessible to the public, and offers ;
- Browse and search functions via the GLEIF website
- Access to the complete dataset in downloadable format for offline analysis
- Direct API integration with third-party systems
- To date the LEI system has been adopted by authorities in 45 countries, implemented through 116 unique mandates.
- Over 1.8 million LEIs have been issued between 2012 and 2021, with a current annual adoption growth rate of 16%.
- European adoption of the LEI system has increased significantly in the last several years with the introduction of MiFID II, MiFIR and EMiR, bringing increased visibility to “Dark Pools” and Over the Counter (OTC) trading.
- The U.S. is the world’s largest user of the LEI system, with nearly 14% of the world's LEIs being registered in the US financial services economy.
- The People’s Bank of China(PBOC) announced the launch of China’s LEI system in December 2014, as part of efforts to keep pace with international developments. The PBOC is itself a member of the LEI Regulatory Oversight Committee, and has been actively working to promote the adoption and use of the LEI nationwide.
- The PBOC has announced a new 2020-2022 roadmap for the implementation of the LEI as part of the ‘Belt and Road’ initiative.
- India has mandated the use of LEIs across a broad range of government and private sector institutions, and has one of the fastest growing LEI issuance rates in the world with an average of 300 LEIs issued each week.
- Data providers and credit check organizations are leveraging LEI data to accelerate customer onboarding and identity refresh processes, and streamlining Know-Your-Customer (KYC) and Anti Money Laundering (AML) activities.
- Research conducted by McKinsey in behalf of the GLEIF estimates that broader adoption of LEIs could save the global banking sector U.S.$2-4 billion annually in client onboarding costs alone. This represents a saving of between 5 percent and 10 percent of the industry’s U.S.$40bn annual overall spend on the practice.
- In addition to the use of LEIs as unique identifiers that can be accessed directly, the GLEIF is now working on incorporating LEI data into digital certificates and other security assets.
- LEIs are now included in x.509 digital certificates.
In summary, in a very short period of time the LEI framework has become globally established and widely adopted across a range of regulated industries and business functions. As the supporting infrastructure matures in the decade ahead, it’s expected that millions more LEIs will be issued, and that LEIs will become the single most recognized identifier for businesses and organizations worldwide.
International Securities Identification Number
- The International Securities Identification Numbering (ISIN) system was established in 1992 to provide rigorous governance around the development, allocation and sharing of International Securities Identification Numbers (ISINs), Financial Instrument Short Name (FISNs) and Classification of Financial Instruments (CFI) codes.
- Membership has grown from the original 22 members to more than 120 agencies – representing over 200 jurisdictions - in 2021.
- Since 1 July 2017, the revised CFI (ISO 10962) and the FISN (ISO 18774 – Financial Instrument Short Name) are globally assigned with the ISIN at the time of issuance of a new financial instrument.
- The ISINs are recorded in the ANNA Service Bureau, a database containing global security and entity identifier data for over 34 million publicly traded instruments.
- As a result, ISIN has become the recognized global standard for the unique identification of all types of financial and referential instruments worldwide.
- ISINs are administered by National Numbering Agencies within each of the member countries – typically part of depositories, exchanges, government agencies, national central data vendors and other financial infrastructure organizations.
- Collectively these NNAs make up the Association of National Numbering Agencies (ANNA), a global organization chartered with maintaining the register of ISINs and CFIs, and upholding the integrity of the data based on ISO 6166, the global standard for ISINs.
- An ISIN identifier code consists of a 12-character alphanumeric string, structured to include:
- the country in which the issuing company is headquartered
- the specific security identification number
- a final character that acts as a security check to deter fraud or misuse
- ISIN identifiers are used to number most forms of securities, including but not limited to
- Since 2018, GLEIF and ANNA have worked collaboratively to provide more direct association and reporting between ISINs and LEIs.
- The volume of ISIN-to-LEI mapping has grown significantly over the last several years, with over 5.5m active ISINs linked to almost 82,000 unique LEIs – roughly 67 ISINs per LEI.
The A-Team award recognizes what many institutions and nations have known for decades. Standardization, openness and interoperability across financial institutions and systems is critical to prevent another major financial crisis. The use of LEIs for institutions and ISINs for instruments is the single most promising mechanism to do this at scale, especially when they work in tandem to streamline research, reporting and notifications.
Corporate Actions (CAs) differ from LEIs and ISINs in a few critical ways:
- LEIs provide public information about AN ENTITY
- ISINs provide public information about INSTRUMENTS associated with that entity
- CAs – as the name states – are ACTIONS taken by entities, many of which require some form of public disclosure or announcement. As it relates to disclosures, the action and the communication of the action are understood to be the same thing.
Unlike LEIs and ISINs, there is no central repository of CAs, no ISO standard, and few mandates around how CAs are worded, distributed or archived. As a result, CAs can represent greater ambiguity and risk for entities and investors because the information is harder to track down. Similarly, the lack of standardization may hinder government agencies and independent assessors when they need to evaluate an entity or establish a risk position.
Nonetheless CAs play a critical role in the financial ecosystem and represent a huge segment of the overall set of data published each year.
- CAs fall into two broad categories - compulsory (or mandatory) actions, and voluntary (or optional) actions.
- Corporate Actions include:
- Name or Trading Symbol Changes
- Stock Splits
- Mergers and Acquisitions
- Rights Offering
- Liquidation and Dissolution
Almost 1 million CAs are issued globally each year.
- There are over 25 individual types of contributor or consumer of CAs, including:
- Accountants of Companies that issue securities
- Tax Authorities in the country of register of the listed securities
- Issuers of Securities (Companies and Governments that need money)
- Exchanges (the money markets)
- Central Security Depositories (where the securities are held)gle Title
- Share registers
- Lead Agent / Paying Agent / Underwriters
- Clearing Agents / Central Counter Parties / Dark Pools
- (Sub) Custodians
- (Global) Custodians
- Prime Brokerage Providers
- Hedge Funds
- Investment Banks
- Fund managers / private wealth managers
- Transfer Agent
- Pension Funds
- Insurance Companies
- Sovereign Wealth Funds
- Local Governments / Charities
- Retail Banks
- Directors and members of the supervisory board of the companies that issue securities
- Tax authorities of the country where the beneficial owner of the securities is domiciled
- "High net-worth individuals or families"
- "Joe the Plumber" – regular investors
- (List Source: Corporate-actions.net website)
- A single CA may involve hundreds of different market participants (including custodians, fund managers, broker/dealers and depositories), ultimately cascading down to thousands of individual or institutional investors.
- Multiple standards exist for communicating CA data between systems and organizations, including:
- The global custody services market stood at over $66Bn in 2009. Custodians – those firms responsible for holding financial assets on behalf of clients – are the most impacted by poor communication and lack of transparency on CAs.
In the past few years the Group of Thirty (G30), the Committee for European Securities Regulators (now called the European Securities and Markets Authority) and the European Central Bank have advocated for greater efficiency and standardisation in corporate action processes in order to increase transparency and reduce risk.
The biggest challenge with CAs is that the standards are optimized for machine-to-machine information exchange, whereas most published CAs are structured for human consumption (reading). Even with advances in AI and machine learning (ML) we are many years away from a world where all data contained in CAs can be accessed, analysed and interpreted using standardized models and tools. In the meantime the continued focus on LEI and ISIN usage will help to build up the foundation onto which incremental data and information can be appended.