CAN AN ISSUING BANK NOMINATE A NON-RMA BANK AS THE TRANSFERRING BANK?

INTRO

This is an interesting question concerning the relationship between the issuing bank, advising bank, transferring bank, and RMA.

In particular, can an issuing bank authorize a bank that does not have an RMA relationship with it to act as the transferring bank when that bank is the beneficiary’s bank?

The following example illustrates one possible arrangement.

QUESTION

Can an issuing bank nominate a non-RMA bank as the transferring bank when that bank is the beneficiary’s bank?

Obidur Rashid Chanchal

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ANSWER

Dear Chanchal.

Thank you for your question.

Yes, it is possible, provided that the LC is advised to the beneficiary through a bank that has an RMA relationship with the beneficiary’s bank (the transferring bank), and the issuing bank is able to authenticate and verify any presentation made by the transferring bank through an acceptable banking channel or other reliable means.

For example:

• Bank A has an RMA relationship with Bank B in the beneficiary’s country.
• Bank B has an RMA relationship with Bank C, which is the beneficiary’s bank and the bank authorized to transfer the LC.

Bank A may issue the LC to Bank B with instructions:

“Advise through Bank C, which is authorized to transfer the LC.”

When Bank C makes a presentation under the LC to Bank A, Bank A must be able to establish the authenticity of the presentation through an acceptable authenticated banking channel or other reliable means before effecting payment.

A MORE STRAIGHTFORWARD ARRANGEMENT

A more straightforward arrangement, however, would be for the LC to be issued to Bank B as the first advising bank and advised through Bank C, while Bank B is authorized to transfer the LC.

In this arrangement:

• Bank B is the first advising bank and the transferring bank.
• Bank C is the beneficiary’s bank through which the LC is advised.

The first beneficiary may substitute its own invoice and draft, where applicable, and instruct the transferring bank to forward the documents to the issuing bank.

The transferring bank should credit the first beneficiary’s account with Bank C with the difference between the transferred LC amount and the amount payable to the second beneficiary.

This arrangement avoids the additional authentication issue that may arise when the transferring bank does not have a direct RMA relationship with the issuing bank.

Best regards,

Mr. Old Man