Should an Advising Bank Go Beyond Its UCP 600 Obligations?

The role of an advising bank under UCP 600 is relatively straightforward: verify the apparent authenticity of the credit and accurately advise its terms to the beneficiary. But should an advising bank go further and alert its customer to ambiguous, impractical, or potentially troublesome conditions in the credit?

A reader recently raised this interesting question.

Question

Interesting post.

I would like to hear your views on the role of the Advising Bank, especially if it had also been appointed as the Nominated Bank, with the credit available at its counters, irrespective of the tenor or method of availability, but without any request to add its confirmation.

Whilst I understand its responsibilities under UCP 600 as the Advising Bank, my question is whether it should go further than simply confirming authenticity and advising the credit as received. Should it also review the contents for ambiguities or problematic conditions and inform the beneficiary accordingly, enabling the beneficiary to approach the applicant and obtain an amendment where necessary?

Certainly, a bank requested to add its confirmation would do so for its own protection and interests. However, would it not be good customer service for an advising bank to provide similar guidance on all credits advised through it?

Your thoughts would be most appreciated.

Thank you.

Bill Du Rand

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Answer

Dear Bill,

Thank you for reading my Q&A and for raising a very interesting question.

According to UCP 600 Article 9(a) and (b), by advising a 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 received from the issuing bank. Unless it is also a confirming bank, the advising bank advises the credit and any amendment without any undertaking to honour or negotiate.

Therefore, an advising bank is not required under UCP 600 to determine whether the terms and conditions of the credit are favourable or unfavourable to the beneficiary, nor is it obliged to assess whether the beneficiary will be able to comply with those terms and conditions.

However, there is a distinction between a bank’s obligations under UCP 600 and the level of service it may choose to provide to its customers.

In practice, many advising banks review incoming credits and amendments and draw the beneficiary’s attention to any unusual, ambiguous, onerous, or potentially unworkable conditions. They may recommend that the beneficiary carefully review the credit and, where necessary, request an amendment from the applicant through the issuing bank. Such assistance is not a UCP requirement, but rather a value-added customer service based on the bank’s experience in documentary credits.

Where the advising bank is also the nominated bank and the credit is available at its counters, there is an even greater practical incentive to review the credit carefully if it intends to act on its nomination. A nominated bank that is willing to honour or negotiate under the credit will typically examine the terms and conditions at an early stage and may recommend that the beneficiary request amendments to any clauses that are ambiguous, impractical, or difficult to comply with. This helps reduce the risk of discrepancies and facilitates the smooth handling of any future presentation.

Likewise, where a bank is requested to add its confirmation, it will normally undertake a more detailed review of the credit before assuming its own independent undertaking. In such cases, the confirming bank may request that certain terms be amended before it is willing to add its confirmation. Examples may include removing the draft requirement, changing the drawee from the issuing bank to the confirming bank, or improving reimbursement arrangements.

So, while an advising bank is not obligated under UCP 600 to identify and comment on problematic credit terms, I personally believe that doing so represents good banking practice and excellent customer service. A brief warning regarding ambiguous or difficult conditions may save the beneficiary considerable time, expense, and frustration later in the transaction.

In short, good banking practice may go beyond the minimum obligations imposed by UCP 600.

Best regards,

Mr. Old Man