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Influential industry groups are urging governments to push adoption of the legal entity identifier (LEI) system, arguing wider uptake could cut trade costs by US$100bn and widen access to financing for smaller companies. 

A decade since it was established by the G20, the LEI – a unique, electronic fingerprint companies can use to demonstrate their identity and ownership – remains “underutilised” in trade, says a report published this week by four industry bodies, including the International Chamber of Commerce United Kingdom (ICC UK). 

It argues that wider usage would dramatically speed up due diligence checks, making it easier for banks to provide financing facilities to SMEs, while cutting the cost of invoice reconciliation, fraud detection and sustainability programmes. 

“The potential savings for international trade could range from US$20bn to US$100bn by reducing information and transaction costs,” it says. 

For banks, LEIs could cut client onboarding costs by as much as a tenth – equivalent to savings of US$4bn per year, according to McKinsey estimates – while also streamlining issuance of letters of credit (LCs), applications for cargo insurance and payment arrangements. 

Yet industry insiders say there is still a knowledge gap within the private sector that is holding back adoption. 

“The biggest barrier, without any shadow of a doubt, is companies – especially SMEs – have never even heard of it. They just don’t know what it is,” said ICC UK secretary general Chris Southworth, speaking at C4DTI’s flagship Digital Trade Conference in London this week. 

The report adds: “This report should act as a wake-up call that adoption rates in the business community are alarmingly low to non-existent and digital identity infrastructure for trade remains fragmented and unfit for purpose for modern, international trade.” 

The report was also authored by the Global Legal Entity Identifier Foundation (GLEIF), a non-profit organisation set up to support LEI implementation and use, as well as trade advocacy group the World Trade Board and the Centre for Digital Trade and Innovation (C4DTI), a public-private partnership led by ICC UK. 

 

Strong case, slow uptake 

The first quarter of 2022 proved a milestone in terms of uptake, with the number of active LEIs passing 2 million. 

However, figures at the time showed a growth rate of just over 3%, a renewal rate of 61.5% and a vast untapped global market, and adoption has not soared since. 

“We have 2.6 million LEIs,” said GLEIF chief executive Stephan Wolf, also speaking at the C4DTI event. The figure for the end of 2023 was 2.41 million. 

“This is pretty much 90% of the global market capitalisation, but far away from the 40 or 50 million entities that are engaged in global trade.” 

The report argues there is no shortage of benefits that would come from wider LEI usage. 

It describes them as a “foundational requirement” for digitising trade, particularly amid a wave of legal reforms that give paperless versions of documents such as bills of lading the same legal standing as their physical counterparts. 

“They connect all aspects of the trading system – shipping, customs and finance – making trade easier, cheaper and more trustworthy,” it says. 

The report says LEIs can be used as part of companies’ or banks’ verification and authentication processes, for instance by bringing multiple names associated with one entity under a single umbrella, smoothing customer onboarding.  

That would also improve SMEs’ ability to go through bank identification and onboarding processes, lowering the costs associated with financing companies typically “less well-served by their banks because of the lack of collateralised assets”. 

The report gives the example of Zimbabwean copper and silver goods manufacturer Copperwares. 

Despite operating for decades, the company struggled to access trade finance and overseas credit as it was not well known to would-be lenders. After obtaining an LEI from GLEIF, with the support of a local bank’s due diligence checks, Copperwares was able to access cheaper and more flexible funding. 

It estimates the market for its products in Southern Africa had the potential to double to US$30bn as a result. 

 

Governments pressed 

The report issues a “call to action” to governments to support wider adoption of LEIs, for instance by incorporating them into existing infrastructure such as the UK’s Companies House corporate registry. 

Governments could also mandate the use of LEIs in public procurement processes and trade schemes, it suggests. 

Although some markets already have national identity schemes, those are not always accepted in other jurisdictions, limiting their use in trade. 

“At the moment, the world is an absolute mess of national identity frameworks,” Southworth said at this week’s event. “There is no common identity framework for international trade, except for the legal entity identifier.”  

He added: “We must talk to governments… to help them understand that national identity schemes will not solve the issues that we are dealing with in a cross-border environment.” 

Wolf gave the example of existing government-led schemes in Singapore and Hong Kong. 

“They told us for the last 10 years that they don’t need an identifier because they have one of their own,” he said. “Now they’re realising that their identifier might be good in Singapore or Hong Kong, but not in Shenzhen or Macau, or any other place around the world.  

“Interestingly, the countries with the most mature domestic models are now the first to embrace the LEI as a global passport.”