India: Introduction of legal entity identifier by RBI on non-derivative forex transactions

updated on 1 April 2020

The Reserve Bank of India ("RBI") vide circular FMRD.FMID.No.10/11.01.007/2018-19 introduced directions for the "non-derivative market" transactions that will mandatorily be required to obtain Legal Entity Identifier ("LEI") registration. It is made mandatory for Eligible Participants to obtain LEI within prescribed time period. In case of failure, RBI and Authorised Dealer Bank shall not be able to honour any kind of banking transactions of the defaulter Eligible Participant till the LEI is obtained.

What is LEI?

The LEI is a 20-character unique global identification number assigned to legal entities who are parties to global financial transactions.

Who are Eligible Participants?

All participants, other than individuals, undertaking transactions in the markets regulated by RBI such as:

Non-derivative forex market; (This is a new inclusion in the list of Eligible Participants)
Government securities market;
Money markets;
Large corporate borrowers of banks;
Over-the-counter markets for rupee interest rate derivatives;
Foreign currency derivatives;
Credit derivatives.

Non-resident entities undertaking financial transactions in the relevant markets shall also require LEI code.

Transactions subject to LEI?

In case of non-derivative forex transactions, participants are required to get LEI registration only if aggregate amount of transaction (inward and outward) is equivalent to or exceeding USD 1 million or equivalent thereof in other currencies.

What is non-derivative forex transactions?

Non-derivative forex transactions are those transactions that are settled on or before the spot date.
*Few practical examples (including but not limited to) for non-derivative forex transactions could be as follows:

Share capital remittance.
Amount received on sales or purchase of goods/services.
Any kind of income received in forex.
Any kind of expense made in forex.

When to apply for LEI?

In case you are eligible under non-derivative forex market mandate, the due date is based on your company's net worth.

For companies that have a net worth of up-to INR 2,000 million, the last due date for such companies is March 31, 2020.

Update:

The Reserve Bank of India, through its circular dated March 27, 2020, extended the deadline of obtaining LEI to September 30, 2020 from March 31, 2020 for participation in non-derivate markets.

For companies that have a net worth of up-to INR 2,000 million, the RBI through its circular dated March 27, 2020, has extended the deadline of obtaining LEI to September 30, 2020 from March 31, 2020.

Validity of LEI?

LEI registration is valid for only one year from the date of issuance/ last renewal date. Therefore, annual renewal is required to be made in this respect.

Consequence of not obtaining LEI till due date?

In case Eligible Participants fail to obtain LEI registration till the due date, in consequence of the failure Authorised Dealer Bank and RBI shall not be able to honour any kind of banking transactions of the defaulter Eligible Participant till the LEI is obtained.

Is LEI Registration applicable on you?

Ask the following questions to yourself in the following order:

Does my company undertake forex transactions (*see examples set out above)?
Is total aggregate of the forex transactions (inward + outward) during the past twelve months more than USD 1 million or equivalent in other currencies, such as EUR?
Is the net worth of your company upto INR 2,000 million?

If answer to all above questions is "Yes", then your company has to get LEI latest by 31 March 2020.

We recommend, that in case if the total aggregate of the forex transactions has not yet approached the USD 1 million mark, but you anticipate the company to cross the mark in the near future, then even in that case the company should already apply for LEI for uninterrupted banking transaction and to avoid last hour rush.

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