In an advanced phase of technology, big businesses and entities indulge in exorbitant financial transactions at an inordinate level which includes a massive amount of money. As the worldwide financial crisis created a huge impact on the economy thus created a need for transparency in financial transactions.
Before the advent of LEI registration, there were enormous cases of documentation frauds, diversion of funds, identity theft and cyber-related theft that targeted customers directly. To curb the above-given issues RBI has brought an all in one solution known as Legal Entity Identifier in June 2017. In this article, we will discuss RBI regulations for mandating LEI Registration in India.
RBI Regulations for mandating LEI Registration
On 5th December, RBI issued a notification to mandate LEI (Legal Entity Identifier) registration in India for entities (non-individuals) who are using centralised payment methods such as RTGS and NEFT for more than ₹ 50 crores.
As per RBI guidelines, entities are required to have an LEI to process their transaction over 50 crores, it is intended to improve business entity financial health by providing financial security, participating in Govt. securities market, non-directive as well as forex markets.
On the other hand, this LEI system will help in maintaining the accuracy of the financial data system for better risk management.
What is the LEI Registration Code?
LEI stands for Legal Entity Identifier, it is a 20 character unique code holding financial information of parties and entities who indulge in any financial transaction over ₹ 50 crores, the objective of this code is to reduce financial frauds and preserve uniformity in money transactions. It provides transparency and accountability in financial transactions and helps to avoid any loopholes in the financial system.
Why do we need the LEI System?
- LEI will create transparency by allowing money lenders and credit provides, in monitoring the exposure to corporate borrowers.
- If you get an LEI number, it allows the authority to identify a borrower as a culprit easily and swiftly. Moreover, it keeps a clear watch on financial transactions done by those companies, to avoid any further financial scams.
- If a user needs to invest in derivative markets, govt. securities or money market then LEI certificate will be a priority for the entities.
- Another significant factor is that LEI can maintain records of all transactions that took place between business and financial institutions of ₹ 50 crores and above through RTGS and/or NEFT.
- Sanction of the loan will not be possible, as well as no loan renewals or enhancement will not be granted unless a user has LEI Number.
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