SWIFT

UCP600 Article 9 Explanation – CDCS Guide: Advising of Credits and Amendments

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Clause a

Clause: A credit and any amendment may be advised to a beneficiary through an advising bank. An advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.

Explanation: An advising bank acts as an intermediary that passes the credit and any amendments to the beneficiary. If the advising bank is not a confirming bank, it does not provide any guarantee or obligation to honor or negotiate the credit; it simply forwards the information received from the issuing bank to the beneficiary.

Example: Bank A (the issuing bank) issues a letter of credit for $100,000 to Beneficiary X. This credit is sent through Bank B (the advising bank). Bank B, which is not confirming the credit, forwards this letter of credit to Beneficiary X without any promise to pay the $100,000 itself.

Clause b

Clause: By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.

Explanation: When the advising bank forwards the credit or amendment to the beneficiary, it indicates that it has verified the apparent authenticity of the document and confirms that the details provided to the beneficiary match those received from the issuing bank. However, advising bank does not verify genuineness of the LC. “Apparent authenticity” means that the letter of credit should appear to look authentic from the face. If LC is transmitted through swift then authenticity automatically verified by checking if it is received in MT700 format and in swift application as this application is secured.

Example: Bank B receives an amendment to the letter of credit from Bank A. Before advising Beneficiary X, Bank B checks the authenticity of the amendment and ensures that the details match those sent by Bank A. Once verified, Bank B advises Beneficiary X of the amendment.

Clause c

Clause: An advising bank may utilize the services of another bank (“second advising bank”) to advise the credit and any amendment to the beneficiary. By advising the credit or amendment, the second advising bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the credit or amendment received.

Explanation: An advising bank can use a second advising bank to forward the credit or amendment to the beneficiary. The second advising bank must also verify the authenticity of the document it received and ensure the details are accurate before advising the beneficiary.

Example: Bank A issues a credit and sends it to Bank B, which then uses Bank C (second advising bank) to advise Beneficiary X. Bank C verifies the authenticity of the document received from Bank B and advises Beneficiary X.

Clause d

Clause: A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.

Explanation: If an issuing bank uses an advising bank or a second advising bank to advise a credit, it must use the same advising bank for any subsequent amendments to that credit to ensure consistency and reliability in communication.

Example: Bank A issues a credit through Bank B to Beneficiary X. Later, if there is an amendment, Bank A must again use Bank B to advise Beneficiary X of this amendment.

Clause e

Clause: If a bank is requested to advise a credit or amendment but elects not to do so, it must so inform, without delay, the bank from which the credit, amendment or advice has been received.

Explanation: If a bank chooses not to advise a credit or amendment, it must promptly notify the bank that sent the credit or amendment of its decision not to advise it. This ensures transparency and allows the issuing bank to take necessary actions. Please note here the word “immediately” is not defined anywhere about how long it means. So we need to consider this as soon as possible.

Example: Bank B receives a credit from Bank A but decides not to advise it to Beneficiary X. Bank B promptly informs Bank A of its decision not to advise the credit.

Clause f

Clause: If a bank is requested to advise a credit or amendment but cannot satisfy itself as to the apparent authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank from which the instructions appear to have been received. If the advising bank or second advising bank elects nonetheless to advise the credit or amendment, it must inform the beneficiary or second advising bank that it has not been able to satisfy itself as to the apparent authenticity of the credit, the amendment or the advice.

Explanation: If an advising bank cannot verify the authenticity of the credit or amendment, it must inform the bank that sent it. If the advising bank still decides to advise the credit or amendment, it must notify the beneficiary or second advising bank that it could not confirm the authenticity.

Example: Bank B receives a credit from Bank A but is unsure of its authenticity. Bank B informs Bank A of this uncertainty. If Bank B decides to advise the credit despite this, it must inform Beneficiary X that it could not verify the credit’s authenticity.

UCP600 Article 38 Explanation: Transferable Credits

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Clause (a)

Clause: A bank is under no obligation to transfer a credit except to the extent and in the manner expressly consented to by that bank.

Explanation: This clause means that a bank can choose whether or not to transfer a credit. The transfer will only occur if the bank agrees to it and follows the terms and conditions specified by the bank.

Example: Company A receives a transferable letter of credit from their buyer. Company A requests Bank X to transfer the credit to Company B. Bank X reviews the request and agrees to transfer the credit according to their internal policies and the terms of the original credit.

Clause (b)

Clause: For the purpose of this article:

  • Transferable credit means a credit that specifically states it is “transferable”. A transferable credit may be made available in whole or in part to another beneficiary (“second beneficiary”) at the request of the beneficiary (“first beneficiary”).
  • Transferring bank means a nominated bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit. An issuing bank may be a transferring bank.
  • Transferred credit means a credit that has been made available by the transferring bank to a second beneficiary.

Explanation: This clause defines the key terms used in Article 38. A transferable credit explicitly states that it can be transferred, allowing the first beneficiary to request its transfer to a second beneficiary. The transferring bank is the one authorized to transfer the credit, and the transferred credit is the result of this transfer process.

Example: Company A (first beneficiary) receives a transferable credit and requests Bank X (transferring bank) to transfer it to Company B (second beneficiary). Bank X, having the authorization from the issuing bank, completes the transfer, creating a transferred credit for Company B.

Clause (c)

Clause: Unless otherwise agreed at the time of transfer, all charges (such as commissions, fees, costs or expenses) incurred in respect of a transfer must be paid by the first beneficiary.

Explanation: By default, the first beneficiary is responsible for paying all costs associated with the transfer of the credit, unless an alternative arrangement is made.

Example: Company A asks Bank X to transfer the credit to Company B. Bank X informs Company A of the transfer fee. Unless Company A and Bank X agree otherwise, Company A is responsible for paying this fee.

Clause (d)

Clause: A credit may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed. A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary.

Explanation: A transferable credit can be divided and transferred to multiple second beneficiaries if the credit permits partial shipments. However, once transferred, the second beneficiary cannot further transfer the credit. The first beneficiary can transfer portions to different second beneficiaries but cannot transfer again beyond that.

Example: Company A receives a transferable credit and requests Bank X to transfer it to Company B and Company C, as partial shipments are allowed. Company B and Company C cannot transfer the credit further.

Clause (e)

Clause: Any request for transfer must indicate if and under what conditions amendments may be advised to the second beneficiary. The transferred credit must clearly indicate those conditions.

Explanation: When requesting a transfer, the first beneficiary must specify whether and how amendments to the credit will be communicated to the second beneficiary. These conditions must be clearly stated in the transferred credit.

Example: Company A requests Bank X to transfer the credit to Company B and specifies that any amendments will be communicated directly to Company B. The transferred credit issued to Company B includes this condition.

Clause (f)

Clause: If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain unamended.

Explanation: If multiple second beneficiaries are involved, and one or more reject an amendment while others accept it, the amendment is valid for those who accept it. For those who reject it, the original terms remain unchanged.

Example: Company A transfers a credit to Company B and Company C. An amendment is proposed. Company B accepts, but Company C rejects it. The amendment applies to Company B’s part of the credit, while Company C’s part remains unchanged.

Clause (g)

Clause: The transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of:

  • the amount of the credit,
  • any unit price stated therein,
  • the expiry date,
  • the period for presentation, or
  • the latest shipment date or given period for shipment, any or all of which may be reduced or curtailed. The percentage for which insurance cover must be effected may be increased to provide the amount of cover stipulated in the credit or these articles. The name of the first beneficiary may be substituted for that of the applicant in the credit. If the name of the applicant is specifically required by the credit to appear in any document other than the invoice, such requirement must be reflected in the transferred credit.

Explanation: The transferred credit must match the original credit’s terms, with exceptions for reducing the credit amount, unit price, expiry date, presentation period, and shipment date. Insurance cover percentage may be increased. The first beneficiary’s name can replace the applicant’s name in the credit, except when the applicant’s name is required on documents other than the invoice.

Example: Company A requests Bank X to transfer a $100,000 credit to Company B. Bank X reduces the credit amount to $80,000 and the expiry date by one month. The transferred credit reflects these changes but retains other original terms.

Calculation of Insurance Percentage

The insurance percentage typically covers the value of the goods plus an additional amount (often 10%) to protect against unforeseen events. Here’s how it works:

For the first beneficiary:

  • LC Value: $100,000
  • Insurance Coverage: 110% of $100,000 = $110,000

For the second beneficiary:

  • Transferred LC Value: $80,000
  • Insurance Coverage: 110% of $80,000 = $88,000

Clause (h)

Clause: The first beneficiary has the right to substitute its own invoice and draft, if any, for those of a second beneficiary for an amount not in excess of that stipulated in the credit, and upon such substitution the first beneficiary can draw under the credit for the difference, if any, between its invoice and the invoice of a second beneficiary.

Explanation: The first beneficiary can replace the second beneficiary’s invoice and draft with their own, provided the amount does not exceed the credit limit. The first beneficiary can then draw the difference between their invoice and the second beneficiary’s invoice under the credit.

Example: Company A (first beneficiary) transfers a $100,000 credit to Company B (second beneficiary). Company B presents an invoice for $80,000. Company A substitutes Company B’s invoice with its own for $100,000 and draws the $20,000 difference under the credit.

Clause (i)

Clause: If the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.

Explanation: First beneficiary must present their invoice and draft but fails to do so or correct discrepancies, the transferring bank can submit the second beneficiary’s documents to the issuing bank without further obligations to the first beneficiary.

Example: Company A (first beneficiary) must present its invoice but fails to do so. Company B (second beneficiary) submits their documents to Bank X (transferring bank). Bank X sends Company B’s documents to the issuing bank without further responsibility to Company A.

Clause (j)

Clause: The first beneficiary may, in its request for transfer, indicate that honour or negotiation is to be effected to a second beneficiary at the place to which the credit has been transferred, up to and including the expiry date of the credit. This is without prejudice to the right of the first beneficiary in accordance with sub-article 38 (h).

Explanation: The first beneficiary can specify that honouring or negotiating the credit should occur at the location to which the credit is transferred, up to the credit’s expiry date. This does not affect the first beneficiary’s rights under clause 38(h).

Example: Company A (first beneficiary) requests Bank X to transfer the credit to Company B (second beneficiary) and specifies that negotiation should take place at Company B’s location. This arrangement is valid until the credit expires.

Clause (k)

Clause: Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank.

Explanation: The second beneficiary or their representative must present all required documents to the transferring bank, not directly to the issuing bank.

Example: Company B (second beneficiary) must submit all documents to Bank X (transferring bank) rather than the issuing bank. Bank X will then handle the documents and present them to the issuing bank.