Why LEI Is Used in the USA
In the United States, the LEI code is used in situations where a company’s activities involve regulated financial transactions or the use of professional financial services. LEI was not created as a general company identifier nor as a substitute for a business registry. Its purpose is to enable financial transactions to be processed technically correctly in situations where transaction reporting is mandatory.
The U.S. approach is practical: LEI applies where a financial service provider must submit data about a transaction and where the unique identification of a legal entity is necessary for that purpose. If such an obligation does not arise, there is no need for an LEI.
For a broader regulatory overview, see our detailed guide on LEI Code in the USA: What You Need to Know.
In Which Situations LEI Becomes Actually Necessary in the USA
LEI becomes necessary in the United States when a company participates in financial transactions that are subject to reporting requirements. This primarily concerns situations where the transaction is executed or intermediated by a regulated financial service provider.
Typical situations include:
– derivative and swap transactions
– institutional or professional securities transactions
– transactions on regulated trading platforms
– transactions that a bank or broker must report in its own name
In such situations, LEI is not an optional add-on. If the LEI is missing, the service provider cannot complete the transaction properly within its systems.
Whose Requirement Is It in Practice?
In the USA, the LEI requirement does not usually come directly from the regulator to the entrepreneur. The requirement arises indirectly through financial service providers.
Regulators such as the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) impose reporting obligations on banks, brokers, and platforms. These service providers are responsible for ensuring that transaction data is correct and compliant.
If a report must include a legal entity identifier, the service provider must obtain it from the client before executing the transaction. In practice, this means that the LEI is requested by the bank or broker, not by the regulator.
The Dodd-Frank Act and Reporting Obligations
In the United States, the practical use of LEI primarily stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act,. The Act introduced reporting obligations for financial transactions for banks, brokers, and trading platforms. The law does not require LEIs directly from companies. Instead, it obliges service providers to submit correct and unambiguous data regarding regulated transactions.
To do this, the service provider must be able to identify which legal entity actually carried out the transaction. LEI is the global Legal Entity Identifier system maintained by the Global Legal Entity Identifier Foundation (GLEIF) and is used as the standard identifier to fulfill this requirement. For this reason, banks and brokers request an LEI before executing a transaction – not at their own discretion, but in order to comply with statutory reporting obligations.
Why a Bank or Broker Requires an LEI
For a bank or broker, LEI is not a matter of client convenience but of their own regulatory responsibility. If they cannot properly report a transaction, the issue lies on their side, not on the client’s.
For this reason, the LEI requirement is not postponed. If an LEI is required, it is requested before the transaction is executed. If the LEI is missing or not valid, the service provider cannot allow the transaction within its system because it cannot fulfill its regulatory obligation.
From the entrepreneur’s perspective, this may appear as an unexpected or “hidden” requirement, but there is no separate decision directed at the company. It stems from the service provider’s obligation to report the transaction correctly.
How LEI Appears in Practice for an Entrepreneur
For an entrepreneur, the need for an LEI usually appears very concretely. The service provider states that an LEI code is required to execute the transaction. No additional explanations or separate processes follow.
LEI is not used in everyday business operations, invoicing, or contracts. It is requested only when a company’s activity reaches the level of financial transactions where reporting is mandatory.
If a company does not operate within such frameworks, the need for an LEI may never arise. If the activity changes, the LEI requirement arises in a specific transaction, not as an abstract rule.
International and Cross-Border Transactions
For U.S. companies, the need for an LEI often also arises through international transactions. If a transaction is executed through a bank or platform operating in multiple jurisdictions, LEI is often used as a common technical standard.
In such cases, the LEI requirement does not stem directly from U.S. law, but from the fact that the service provider must treat the same transaction under multiple regulatory frameworks. LEI enables the service provider to handle the same transaction across multiple regulatory frameworks without separate exceptions or manual controls.
Conclusion
In the United States, LEI is not a general business requirement. However, in many financial contexts, it is practically unavoidable. The need for an LEI does not arise from the mere existence of a company, but from the company’s activities.
LEI is not required from an entrepreneur as an abstract rule. It is required by banks and financial service providers when they cannot fulfill their regulatory obligations without it. Once that threshold is crossed, LEI becomes a prerequisite for executing the transaction.
In the U.S. context, LEI is a practical tool that appears only when a company’s activities reach the level of regulated financial transactions. Once that threshold is crossed, LEI is no longer optional.
If your company has reached that threshold, you can register or renew your LEI here.