Reported by Financial Tech Times

(Excerpt shown below. To read full report, go to: https://www.thestreet.com/crypto/newsroom/legal-entity-identifiers-momentum-in-crypto)

As cryptocurrencies continue to develop and attract attention from institutions, complying with regulations is becoming increasingly important. A tool that is gaining popularity in this area is the Legal Entity Identifier (LEI). This globally recognized identifier serves as a unique identification code for legal entities involved in financial transactions.

LEI was developed to meet the needs of traditional finance but is now beginning to add value to crypto, where KYC and AML procedures can be improved. With the regulatory environment of crypto becoming more challenging and the desire for transparent and interoperable systems, LEI will serve as the crucial mechanism connecting the traditional financial world to its digital counterpart.

Understanding the Changing Face of Crypto Regulation

In the early days of cryptocurrency, this market was often described by its pseudonymity and resistance to centralized oversight. However, the rise of institutions in recent years has altered this perception. In addition to hedge funds, asset managers, and investment banks, as well as liquidity providers and custodians, more traditional players are now experimenting with crypto assets, albeit within strict regulations.

This change has resulted in bringing KYC Compliance to the front. The regulators like the SEC in the United States and FATF globally are putting greater focus on the capacity of crypto-based platforms to find out the companies they are dealing with. This means that trading platforms, DeFi protocols, and custodians are all under increasing demands to reveal their counterparties. They ensure that they are not facilitating illegal transactions.

This is where LEI comes into its role.

LEI as a Unique Identifier for the Institutional Age

This 20-character code uniquely identifies legal entities that participate in financial transactions. It is administered by the Global Legal Entity Identifier Foundation (GLEIF) and issued by accrediting local Operating Units (LOUs). It works as standardized and verified information about the control and ownership of the legally formed entity.

This standardization holds immense value in the crypto industry. This is where identifying businesses across different jurisdictions, blockchains, and business models can become complicated. Contrary to wallet addresses that can be easily faked and spoofed, the LEI connects an entity to validate public legal data. This opens a new level of transparency for institutions that can lower risk and improve compliance.