The Reserve Bank of India (RBI) has released a new circular on Unique Identifiers in Financial Markets (LEI and UTI). Identifiers such as the Legal Entity Identifier (LEI) and Unique Transaction Identifier (UTI) are key global standards for promoting transparency in the financial markets. The Reserve Bank has mandated the implementation of LEI and UTI for transactions in financial markets regulated by it. The PDF of the circular is given at last. Scroll down and download PDF.
What is Legal Entity Identifier (LEI)?
A Legal Entity Identifier (LEI) is a unique 20-character code used to identify companies and organizations that take part in financial transactions. It is like an Aadhaar number or PAN card for companies. It helps regulators and financial institutions know who is involved in a transaction. LEI is required in Bank loans (especially large loans), Forex transactions, Derivatives and financial markets, Corporate transactions.
What is Unique Transaction Identifier (UTI)?
A Unique Transaction Identifier (UTI) is a unique code given to a financial transaction. It helps identify and track that specific transaction from start to finish. If LEI is like an ID for a company, then UTI is like an ID for a transaction. Every important financial deal (especially in markets like derivatives or forex) gets its own UTI. UTI is used to track a transaction easily.
RBI Guidelines on Legal Entity Identifier
(1) The LEI code shall be applicable to all OTC transactions undertaken by entities other than individuals in the markets for Government securities, money market instruments, foreign exchange instruments and derivatives covered under section 45U of Chapter III-D of the Reserve Bank of India Act, 1934.
(2) For users / clients undertaking non-derivative foreign exchange transactions, the LEI code shall be applicable only for transactions involving an amount equivalent to or exceeding USD one million or equivalent thereof in other currencies.
Framework for implementation of LEI
(1) All participants, resident and non-resident, undertaking transactions falling within the scope of these Direction shall obtain an LEI code from a Local Operating Unit (LOU) which is accredited by the Global Legal Entity Identifier Foundation (GLEIF). In the case of an LOU in India, the LOU shall be an entity recognised by the Reserve Bank as an issuer of LEI under the Payment and Settlement Systems Act, 2007.
(2) Non-residents that are not legal entities in their country of incorporation (e.g., funds operated by a non-resident parent / management company that are each registered as a Foreign Portfolio Investor) may use the LEI code of the parent / management company.
(3) Entities involved in / responsible for executing transactions, reporting or for depository functions in the markets regulated by the Reserve Bank shall capture the LEI code of the transacting participants in their systems.
(4) Entities without an LEI code shall not be eligible to undertake transactions in the financial markets regulated by the Reserve Bank. Entities shall ensure that their LEI code is considered current under the rules of the global LEI system and has not lapsed.
RBI Guidelines on Unique Transaction Identifier (UTI)
(1) UTI shall be generated / reported for all transactions in OTC derivatives market undertaken in terms of the Governing Directions. The directions shall be applicable to OTC derivative transactions entered into on or after the date the directions come into effect.
(2) UTI shall be generated in accordance with the UTI Technical Guidance issued by the Committee on Payments and Market Infrastructures (CPMI) – International Organisation of Securities Commissions (IOSCO) in February 2017. It shall have a maximum of 52 characters comprising the LEI of the generating entity followed by a unique identifier and shall be unique to a derivative transaction throughout its lifecycle.
(3) For transactions that are reportable in India and in a foreign jurisdiction and the foreign jurisdiction has a sooner reporting timeline, market participants may undertake reasonable efforts to ensure that the UTI is obtained and reported within the reporting deadline for the transaction. In case the market participant is unable to obtain the UTI within the reporting deadline, the market participant may obtain and submit the UTI to CCIL-TR at the earliest thereafter, but in any case, within five Mumbai business days from the date of the transaction. Any temporary UTI reported by the market participant or generated by the CCIL-TR when the transaction was initially reported, will then be treated as an interim UTI.
(4) Amendments to a derivative contract, post reporting to the CCIL-TR, shall not necessitate the generation of a new UTI. However, a lifecycle event such as novation that results in the creation of a new reportable derivative contract, as per extant reporting guidelines, shall necessitate the generation of a new UTI.
(5) CCIL shall issue the operating guidelines and reporting formats for reporting of UTI.
