LEI in KYC: A New Future for Legal Entity Identification

The Global Legal Entity Identifier Foundation (GLEIF) has undertaken research with specialist research agency, Loudhouse, to identify the key challenges of legal entity identification in financial services. The research surveyed 102 senior salespeople in the banking sector in the UK, US and Germany, exploring the challenges that the banking sector faces when it comes to onboarding new client organizations, including how time-consuming the onboarding process is and the confusion that comes with financial institutions using on average four identifiers to help identify client organizations.

The findings form the basis for a research report from GLEIF titled ‘A New Future for Legal Entity Identification’, in which GLEIF outlines its view that replacing disjointed information with a globally accepted approach based on broad adoption of the Legal Entity Identifier (LEI) would remove complexity from business transactions and deliver quantifiable value to financial services firms. The report together with a separate document detailing the research findings are available for download at the foot of this page.

The onboarding burden

Six in 10 (57%) senior salespeople in banking spend more than 1.5 days of their week (27% of their working week) onboarding new client organizations, according to the research findings. The research also found that 50% of financial institutions use, on average, four identifiers to help identify client organizations. The process of client onboarding, including know your customer (KYC) due diligence, was shown to take six weeks, on average. This length of time spent onboarding creates a significant burden; salespeople have less time to work on their core focuses, such as acquiring new business and servicing existing clients.

Other key findings include:

  • 57% of respondents agree that reliability of reference data is a challenge.
  • 55% of respondents agree that the resourcing of onboarding is a challenge.
  • 55% of respondents agree that lengthy processes mean risk of business loss.
  • 61% of respondents agree that digital technology will further complicate the process.

The research results show that the onboarding process for new business relationships in financial services is too time-consuming and requires too much administration. In a globalized digital economy, verifying the identity of customers, partners and suppliers is becoming an increasingly complex and costly challenge. However, the growth of identifiers is leading to problems that must be resolved to assure their vital place in oiling the wheels of the growing global digital economy.

The burden continues even once the client is established. Client data must be kept up-to-date throughout the business relationship. This includes regular verification of business card information and changes to the ownership structure.

The research identified that the crux of the problem is the lack of a standardized approach to legal entity verification. As a result, 54% of respondents agree that the use of different legal identifiers for the same legal entity leads to inconsistencies with updates to different reference data sets. The research found that 58% of those surveyed said that the associated reference data is not up-to-date, while 46% said reference data from different sources is inconsistent and 49% said the same ID is used for different legal entities.

Onboarding of client organizations in financial services: GLEIF proposes a standardized way forward

Identifiers of legal entities are easily obtained from a host of different issuers but are not kept up-to-date in a systematic way. Organizations need a more efficient system for legal entity identification. Some think technology will help but there is no general consensus about what the solution should be.

GLEIF advocates that financial services businesses can save time, gain greater transparency, and work in a more streamlined fashion by adopting an LEI for each client organization. Banks operate in multiple jurisdictions and therefore need a global standard. The LEI offers businesses a one-stop approach to identifying legal entities, which has the potential to take the complexity out of business transactions. Via the Global LEI Index, we make available the largest online source that provides open, standardized and high quality legal entity reference data. No other global and open entity identification system has committed to a comparable strict regime of regular data verification.

Integrating the LEI into other entity verification methods, including solutions based on digital certificates and blockchain technology, will allow anyone to easily connect all records associated with an organization and identify who owns whom. By becoming the common link, the LEI will provide certainty of identity in any online interaction, making it easier for everyone to participate in the global digital marketplace.

For more information on how to create business value with the LEI, read the joint McKinsey & Company and GLEIF white paper ‘The Legal Entity Identifier: The Value of the Unique Counterparty ID’.

Relevant Files for Download