Landmark Anti-Money Laundering (AML) legislation, finalized by the EU in Q2 2024, calls for the LEI to be used by financial institutions for customer identification and verification of legal entities during onboarding procedures. This is a key piece needed in the legislative puzzle that will support the development of a digitally enabled EU payments system that helps increase efficiency for all actors involved in transactions. The inclusion of the LEI in the EU’s AML package, recast Transfer of Funds Regulation, and Instant Payments Regulation means that organizational identity can now transform the EU payments ecosystem, enabling a more secure, faster, cheaper, less burdensome, and more transparent payments ecosystem.
Now, financial institutions, financial software solution providers, and treasury management solution providers across this jurisdiction must begin the process of integrating the LEI within the technologies and workflows used to facilitate payments.
Specifically, the new AML Regulation references the LEI as part of identifying and verifying customers and beneficial owners for legal persons. It also includes measures concerning Know-Your-Customer (KYC), which require the disclosure of their LEI, where available.
Additionally, the 2023 recast of the EU’s Transfer of Funds Regulation (TFR), first adopted in 2015, ensures that transfers are accompanied by key data points on both originating and beneficiary entities, including, where available, the LEI.
In parallel, the EU’s Instant Payments Regulation (IPR) will enable Payment Service Providers (PSPs) to utilize the LEI to verify beneficiaries for instant credit transfers in Euros.
2023-24 has been a milestone period for the LEI in cross-border payments, which has seen support for the LEI to be included in ISO 20022 payment messages ringing out from key financial stakeholder groups, including, among others, the Financial Stability Board, the Financial Action Task Force, the BIS-CPMI, the Bank of England, SWIFT's Payments Market Practice Group, The Wolfsberg Group, and the London Stock Exchange.
By the end of 2025, all payments messages must be based on ISO 20022, so all new payment orders must contain structured address data by 21 November 2025 at the latest. LEI can be an alternative, so ensure your organization is ready for the LEI requirement for originator and beneficiary identification in payments and maximize its value.
Do your suppliers have LEIs? Use the GLEIF LEI search to explore their global public profiles. A quick check can make all the difference in enhancing your payment processes.
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By Guillermo De La Fuente, Board Member, EACT
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