The Financial Stability Board (FSB) has placed its backing into the adoption of Legal Entity Identifier (LEI) tools to bolster cross-border payments.
FSB has highlighted LEI as a payment tool that should be implemented across the global payments ecosystem citinga report the board released last month, recommending LEI features to global standards-setting organisations.
A primary focus of the FSB was to enhance cross-border payments by making them faster, cheaper and more transparent. FSB believes this can be achieved through the use of LEI and to support the goals of the G20 roadmap.
LEI is a tool that can identify unique parties of each transaction. FSB believes this is a ‘fundamental requirement’ in processing payments precisely from both payer and payee.
According to FSB, banks and financial institutions have been ‘compelled’ to incorporate LEI as a component of their cross-border payments infrastructure, allowing them to lower costs. In addition, KYC due diligence can also benefit by easing compliance.
LEI has also been identified as a system that can facilitate sanctions lists or as the primary means of identification of legal entity customers which FSB emphasises is needed to support a “cross-border payments evolution”.
Financial institutions of note to infer their intentions of adopting LEI tools, the Bank of England has stated its support to facilitate a wider uptake of LEI and will implement it into its ISO 20022 for its CHAPS payment messages system in February 2023.
To add on, the European Commission has recognised LEI as a valuable mechanism for supporting transparency in AML. The EC issued two legislative proposals that have called for LEI to be integrated into customer identification and verification scenarios moving forward.