20 new Message Definitions to support Demand Guarantees and Standby Letters of Credit are published

Mar 12, 2013

Trade Services Messages

 

What are the Demand guarantees and Standby letters of credit?

Demand guarantees and standby letters of credit are widely used financial instruments that provide a type of monetary assurance, typically to compensate a beneficiary in the event of non-performance by the applicant (principal) under the terms of a contract. They are independent undertakings paid on the presentation of documents that comply with the terms and conditions as specified in the instrument.

Such undertakings can be used in multiple situations, for example: providing for payment or non-payment on performance, in connection with an advance payment, assuring payment of goods delivered, or financial obligations, etc. Their use arises where money-like dependable promises from neutral third parties are important, for example between a buyer and seller or between an importer and exporter, where a financial institution can act as the neutral third party.

 

In response to a need for standard communication methods ...

The creation of this new set of ISO 20022 messages ensures coverage of the full end-to-end flows (applicant-bank-bank-beneficiary) for an important segment of the trade business and supports the exchange of both demand guarantees and standby letters of credit information in a more structured and granular form. Overall this development facilitates significant STP improvement and allows the process to be monitored and managed in a more effective and efficient manner.

Provision has been made for the various rule sets that govern the use of these undertakings, along with the use of associated model forms. The messages include support for business functions such as application, issuance, confirmation, advising, amendment, counter-undertaking, demand processing, and termination. The demand guarantees and standby letters of credit message definitions standardise the message flows and message structures used for information communication among the parties dealing with these instruments.

 

Background

The current SWIFT Category 7 messages for demand guarantees and standby letters of credit were implemented in the 1980s and have remained largely unchanged, changes in response to regulation excepted.

Following on from a more recent community consultation process this set of twenty ISO 20022 message definitions was developed by SWIFT in close collaboration with the trade finance community and approved by the Trade Services Standards Evaluation Group.

SWIFT acknowledges the active contribution made by specialists from the following organisations:  ABN Amro, BNP Paribas, Bank of America Merrill Lynch, Bank of Montreal, Citibank, Commerzbank, Credit Agricole CIB, Deutsche Bank, Global Trade Advisory, HSBC, IIBLP (Institute of International Banking Law & Practice), J.P.Morgan Chase, Standard Chartered Bank, SunTrust, UBS, and Wells Fargo.

These messages are specifically designed to support the exchange of data concerning demand guarantees and standby letters of credit, and in limited circumstances to support the request for issuance/amendment of paper-based surety ship undertakings.

 

Related documentation

The Demand Guarantees and Standby Letters of Credit Message Definition Report (MDR) is available here and you can also consult the Trade Services message catalogue for detailed information (message schemas, instances...).