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The LEI: Unlocking the Benefits of a Secure Payments Ecosystem for Corporate Treasurers

In this blog post, Guillermo De la Fuente, a Board member of the Association of Corporate Treasurers in Switzerland and Board member of the European Association of Corporate Treasurers (EACT), explores the benefits of the LEI for corporate treasurers, the necessary evolution of the supporting vendor ecosystem and the potential for a more cohesive and secure cross-border payments infrastructure. Guillermo has recently been appointed as the co-chair of GLEIF's Vendor and Service Providers Relationship Group.

Author: Guillermo De la Fuente, Board member of ACTSR and Board member of EACT

  • Date: 2024-02-06
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Corporate treasurers are increasingly supportive of the LEI in cross-border payments. From your vast experience and understanding of the corporate and financial institution world, why is the LEI attractive to them?

With the implementation of the Legal Entity Identifier (LEI), corporate treasurers can unlock numerous benefits in areas such as onboarding, fraud reduction, and operational efficiency. For these advantages to be fully realized, however, the ecosystem supporting the corporate treasurer - including vendors and service providers offering treasury management services, Enterprise Resource Planning (ERP), Know Your Customer (KYC), and payments surveillance tools - must evolve to effectively incorporate the LEI as well.

In support of this, GLEIF, on its mission to promote the implementation and use of the LEI, has been working with different stakeholder groups over the years to step up efforts and encourage communication among the different actors within the Global Legal Entity Identifier System (GLEIS). Among these are the stakeholders within the corporate treasurer ecosystem, which GLEIF recently invited the European Association of Corporate Treasurers (EACT) to co-chair.

The group was created with the aim to jointly promote the adoption of the LEI and provide a platform that facilitates communication between GLEIF and the group´s members. Since the group was set up in 2014, participation has grown to more than 40 members from all over the globe, and new member interest is continually high. It is a well-established forum that allows active members to stay informed on the latest LEI developments and participate in GLEIF’s different business development initiatives.

With the LEI now becoming a reality for entity identification in cross-border payments, I am very proud to represent and be the voice of the corporate treasurer community globally within the leadership of this group. I am excited to ensure that representatives of real businesses understand and can take advantage of the myriad benefits associated with the LEI in cross-border payments. This includes being able to identify legal entities across the whole payments flow: KYC and customer onboarding, fraud and scam detection, invoice reconciliation, account-to-account owner validation, and improved screening (e.g., watch lists and sanctions).

What are the pain points corporate treasurers suffer that the LEI could help to minimize?

A lack of harmonization within cross-border data flows inhibits the identification of suspicious activity and the exposure of criminal networks. This contributes to a cross-border payments ecosystem that can be broadly characterized by limited trust, high costs, low speed, and insufficient transparency. Fragmentation largely inhibits a coherent and common response to this challenge.

The Financial Action Task Force (FATF) has identified data-sharing and data standardization as key approaches to addressing this lack of transparency. Together, these enable the advanced analytics needed to support effective anti-money laundering (AML) and counter-terrorist financing (CFT) initiatives across borders. Clearly, the LEI as a universal entity identifier could help here.

Furthermore, Swift's Payments Market Practice Group (PMPG) has recently released a paper outlining the benefits of integrating the LEI into ISO 20022 payment messages. The global adoption of the LEI in ISO 20022 payment messages signifies an evolution in financial standards, which has the potential to result in a more secure and interconnected global financial system. As the industry embraces this standard, the positive impact on data quality, risk management, and regulatory compliance becomes increasingly apparent.

How do LEI benefits extend to support instant payments?

It is important to note the emergence of a legislative/legal ecosystem across the globe which supports reduction in fraud and better detection of financial crime. When the LEI is integrated within ISO 20022 payment messages, transparency and trust within both the KYC process and account-to-account owner verification are enhanced significantly.

Only a few months ago, the Financial Stability Board’s stock take report showcased the challenges to effective cross-border payments, in which a number of authorities highlighted the need to use LEIs to reduce the complexity and cost of cross-border payment processing.

The European Union has been progressively strengthening its AML rules and has placed the legal foundation for the LEI to be used in both KYC and account-to-account use cases.

Within the proposed AML Regulation (still in process), Article 18, the European Commission introduces additional due diligence checks to provide safeguards for obliged entities conducting a business relationship with legal persons and entities. As part of the new customer verification procedure, the text mandates the disclosure of the LEI, where available, when pertaining to the following cases:

  • A legal entity;
  • A trustee of an express trust or a person holding an equivalent position in a similar legal arrangement;
  • Other organizations that have legal capacity under national law.

Within the European Instant Payments Regulation, we find the LEI introduced in the text describing IBAN-name matching provisions. The future Instant Payments legislation will enable Payment Service Providers (PSPs) to offer the payer the option to use the LEI of the payee, where the payee is a legal person, to enhance the matching process with the payment account identifier. More significantly, the provisions are expected to cover all credit transfers (not only instant credit transfers as initially suggested), which means PSPs will also be able to offer the payer the option to use the LEI for normal credit transfers.

I’m very excited to see momentum build: on a country level, the United Kingdom and India are shining examples of how market infrastructures can implement the LEI, allowing financial institutions and service providers to leverage the LEI for better account or payee validation. With the Instant Payments’ legislation, financial institutions and their service providers will be establishing the same technical infrastructures. The vendor community now has the opportunity to enhance their product offerings so that corporate treasurers can realize the benefits of the LEI across the payments ecosystem. We already see some examples in the pilot projects published by GLEIF. Global vendor Moody’s, along with treasury and trade solution provider Ceviant and innovative platforms like RegTech and Finema, are leveraging the LEI to streamline onboarding.

With the LEI embedded in the critical processes of KYC and account-to-account verification, corporate treasurers can take full advantage of the activities in between – better corporate invoice reconciliation and enhanced fraud and vendor scam detection. However, vendors and service providers’ support is absolutely critical to enable this evolution.

How do you see your role as the new co-chairman of the Group? What are your strategic priorities?

EACT fully supports strong AML requirements and sees the potential to further enhance the balance between security and fraud prevention and the efficiency of rules. Harmonizing KYC obligations would streamline and simplify corporate-bank relationships not only throughout the EU but also globally. This could eventually result in a conceptual idea equivalent to an ‘AML passport’. Corporates could obtain this 'passport' by completing a KYC procedure with one bank and subsequently use it to establish client relationships more easily with other banks. With the incoming AML framework through regulation, banks will be subject to harmonized KYC requirements, so this could be a viable option to explore. The vLEI would play an important role as a global organizational identity credential.

The Vendor and Service Providers Relationship Group already provides members with a channel to a vendor community experienced in the LEI. In my role as co-chair and as a representative of EACT, I am looking forward to extending direct engagement between members of this group and the corporate treasurer community. I hope it will help to promote greater understanding between the two stakeholder groups and enable the vendor community to better support global corporate treasurers as they continue to leverage the LEI to reduce fraud in payments and implement new legislative initiatives like the EU instant payments legislation.

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About the author:

Guillermo De la Fuente is a finance expert who brings 30 years of experience in different roles for multiple industries like banking, commodity trading, chemicals, telecommunications, and international organizations. Currently, he is a Senior Treasury and Risk Manager at SITA, a Board member of the Association of Corporate Treasurers in Switzerland (ACTSR), a Board member of the European Association of Corporate Treasurers (EACT), and also the International Group of Treasury Associations. Co-chair of GLEIF's Vendor and Service Providers Relationship Group. Prior to that, Guillermo was Treasurer at RAIZEN, the Commodity trading arm of SHELL for both Sugar and Ethanol, as well as Treasurer for JPMorgan in Geneva, where he moved in 1999 to join CERN, the Laboratory for Physical Particles as head of Treasury and Payments. In Spain, Guillermo worked for large US MNCs like GE, FLUOR, and DUPONT.

Guillermo got an MBA from the University of Houston and a Master's in Finances & Economics at Oviedo University, specializing with honors in Taxation. He sits on the boards of the FACTOFINANCE, ACTSR, EACT, and IGTA and is also a good citizen, participating actively in the Council of his town hall. In his spare time, he loves skiing in the Alps with his wife and son.

Tags for this article:
Client Relationship Management, Compliance, Data Management, Data Quality, Digital Identity, GLEIF Services, Global LEI Index, Global Legal Entity Identifier Foundation (GLEIF), Governance, Know-Your-Customer (KYC), LEI Business Case, LEI Issuers (Local Operating Units - LOUs), LEI Mapping, LEI Renewal, Legal Entity Identifier (LEI), Open Data, Policy Requirements, Regulation, Risk Management, Standards, Verifiable LEI (vLEI)