Confirmer under ISP98 vs. Confirming Bank under UCP 600

Standby practitioners who move from the world of commercial documentary credits into standby credits governed by ISP98 often encounter an interesting question:

Does a “confirmer” under ISP98 operate the same way as a “confirming bank” under UCP 600?

At first glance, the concepts appear almost identical. However, Rule 1.11(c)(i) of ISP98 sometimes creates confusion because it states that a confirmer is treated “as if” it were a separate issuer issuing a separate standby for the account of the issuer.

This naturally raises further practical questions:

• Must the confirmer physically issue another SBLC?
• Or is adding confirmation to the existing standby sufficient?
• And in jurisdictions where local law requires a local bank-issued SBLC, can a local bank simply add confirmation to a foreign-issued standby?

The following question addresses these important distinctions between ISP98 and UCP practice.

QUESTION

Dear Mr. Old Man,

Would you please kindly explain the differences between a “confirmer” under ISP98 and a “confirming bank” under UCP 600 (other than the fact that under UCP it must be a bank)?

And does a confirmer under ISP98 have to issue another separate SBLC in order to confirm the SBLC? (Rule 1.11)

Our bank wants to issue an SBLC subject to ISP98, but local law requires a local bank to issue the SBLC. In this case, can the local bank simply confirm our SBLC, or does it need to issue another SBLC in order to support our undertaking?

Best regards,
Đào Thu Trang

__________

ANSWER

Dear Trang,

Thank you for your very interesting question.

A “confirmer” under ISP98 is conceptually very similar to a “confirming bank” under UCP 600.

Under ISP98, a confirmer is defined in Rule 1.09 as a person who, upon an issuer’s authorization or request, adds its own independent undertaking to that of the issuer to honour a complying presentation under a standby letter of credit.

Likewise, under UCP 600, a confirming bank adds its own irrevocable undertaking to honour or negotiate a complying presentation under a documentary credit.

So, commercially and legally, both concepts serve essentially the same purpose:

the beneficiary receives an additional independent undertaking from another party.

One difference, as you correctly noted, is that UCP 600 specifically refers to a “confirming bank,” whereas ISP98 uses the broader term “confirmer,” which theoretically does not have to be a bank, although in practice it almost always is.

Under Rule 2.01(d)(i), a confirmer undertakes to honour a complying presentation made to it by:

• paying at sight,
• incurring a deferred payment undertaking,
• accepting a draft,
• or otherwise honouring in accordance with the terms of the standby.

Regarding your second question, a confirmer under ISP98 does not necessarily issue a separate SBLC.

In practice, the procedure is very similar to confirmation under a commercial LC governed by UCP 600.

Normally, the confirmer simply advises the issuer’s SBLC to the beneficiary together with wording such as:

“We add our confirmation to this Standby Letter of Credit.”

or:

“We hereby undertake that drawings complying with the terms of this standby will be duly honoured.”

Therefore, operationally, the beneficiary usually receives:

• one SBLC package,
• consisting of the issuer’s standby together with the confirmer’s added undertaking.

Rule 1.11(c)(i) sometimes causes confusion because it states that:

“Issuer” includes a “confirmer” as if the confirmer were a separate issuer and its confirmation were a separate standby issued for the account of the issuer.

However, this provision does not mean that the confirmer must physically issue another separate SBLC.

The rule is mainly explaining the legal nature of the confirmer’s obligation. In other words:

• the confirmer has its own independent undertaking toward the beneficiary,
• separate from the issuer’s obligation,
• and not merely an agency or reimbursement role.

So the confirmation is treated legally as if it were a separate standby issued for the account of the issuer, even though operationally it is usually incorporated into the advised SBLC itself.

In your case, if local law requires involvement of a local bank, the local bank may be able to add its confirmation to your SBLC, provided such structure is acceptable under local regulations and agreed by the parties.

Whether the local bank must instead issue its own separate local SBLC would depend primarily on:

• local regulatory requirements,
• exchange control rules,
• enforceability considerations,
• and the commercial expectations of the beneficiary.

In many jurisdictions, however, local regulations requiring a “local SBLC” are often satisfied by issuance of a separate local counter-standby or local guarantee structure rather than merely adding confirmation.

Best regards,
Mr. Old Man