LEI Codes for VASPs: What They Are and Why You Need One
As regulations tighten around digital asset transfers, Virtual Asset Service Providers (VASPs) are under increasing pressure to meet transparency and compliance standards. One tool at the centre of this transformation is the Legal Entity Identifier (LEI), a globally recognised code that allows businesses to be uniquely identified in financial transactions.
Developed initially to clarify complex global markets, LEIs have become essential in the fight against money laundering and terrorist financing, particularly under frameworks like the FATF’s Travel Rule.
This blog explains why LEIs are important for VASPs, how they support regulatory obligations such as the EU’s Transfer of Funds Regulation (TFR), and what recent industry research reveals about their adoption.
Why LEIs Matter for the Travel Rule
Legal Entity Identifiers are critical components in global finance. These 20-character alphanumeric codes allow businesses to be uniquely identified in an international database managed by the Global Legal Entity Identifier Foundation (GLEIF).
LEI codes offer valuable information, including a company’s name, address, affiliations, and registration details, ensuring clarity and transparency in business transactions. This clarity is precisely what the FATF seeks with its Travel Rule, and is especially valuable when interacting with new or unfamiliar entities.
The Travel Rule aims to combat money laundering and terrorist financing by requiring clear sender and recipient information in digital asset transfers. As a result, LEIs are now being integrated into multiple regulatory frameworks, including the EU’s MiFID II, EMIR, and its implementation of the Travel Rule, the TFR.
Moreover, using a standardised and globally recognised identifier, LEIs also help reduce the risk of fraud and impersonation, strengthen know-your-customer (KYC) and anti-money laundering (AML) checks.
Are LEIs Required?
If your business operates in finance or crypto and deals with cross-border transactions, it’s likely that you’re already required to have an LEI. Many jurisdictions enforce this requirement, and various EU regulations rely on LEIs for reporting and verification.
LEI codes enhance trust, simplify compliance, and serve as a critical link in transaction reporting frameworks. The International Organisation for Standardisation (ISO) standardises the codes, making them globally interoperable and reliable.
Read more about ISO 17442: The Global Standard.
LEIs and the Transfer of Funds Regulation (TFR)
Under the European Union's Regulation (EU) 2023/1113 (TFR), which governs information accompanying transfers of funds and certain crypto assets, there is a provision concerning the inclusion of an entity’s LEI code in fund transfer information.
This inclusion facilitates the identification of parties involved in transfers, aiding in preventing and detecting money laundering and terrorist financing activities. Specifically:
Article 4(1)(d) states that, subject to the existence of the necessary field in the relevant payments message format, and where provided by the payer to its payment service provider, the current LEI of the payer (or an equivalent official identifier) should accompany the transfer.
Article 4(2)(c) requires the inclusion of the payee's LEI under similar conditions.
Source: European Union's Regulation (EU) 2023/1113
ESMA Survey Confirms LEI Codes as the Industry Favourite
In addition to LEIs being a requirement in various EU frameworks, a recent survey by the European Securities and Markets Authority (ESMA) confirms that LEIs are the preferred identifier for financial reporting.
The survey, which gathered input from 136 participants across 26 countries, revealed that 86% of VASPs favour using LEIs. It also highlighted the high costs of integrating alternative identifiers and called for improved automation and interoperability between LEIs and European Unique Identifiers (EUIDs) to reduce administrative burden and complexity.
By using LEI codes within our Travel Rule solution, 21 Analytics perfectly aligns with market needs and regulatory requirements
Parting Thoughts
LEI codes have become more than just a best practice; they are quickly becoming a necessity. By offering a standardised, globally recognised way to identify legal entities, LEIs support compliance with key frameworks and enhance trust across financial transactions.
Learn more about 21 Analytics’ Travel Rule solution and how it incorporates LEI codes to ensure complete Travel Rule compliance. Reach out to us today.
