Many of us have numerous credit cards, bank accounts, brokerage accounts and miscellaneous household accounts, probably with different account numbers. But most of us have only one Social Security number, so when we apply for a mortgage, the bank often begins to evaluate the risk by using that one number that unites our life, the Social Security number.
That is the simple idea behind the global Legal Entity Identifier (LEI), which insurance and other financial services regulators will soon begin to use to evaluate their charges. Companies have exposure to all sorts of counterparties in myriad ways, and difficulty identifying counterparty linkages translates to difficulty properly evaluating risk. So the G-20, through the Financial Stability Board (FSB), decided each financial services entity will have a unique 20-digit code, making it much easier to identify and roll up counterparty risk.
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