Some important changes appear to be taking place regarding
banks in the UK adding their confirmation to Letters of Credit issued by
overseas correspondent banks.
Traditionally, the decision on whether a UK bank would add
confirmation to an incoming Letter of Credit has been based on a number of
factors including requisite SWIFT key arrangements between the banks involved,
assessment of political/economic/sovereign risks in the country pertaining to the
Issuing Bank , sanctions considerations, reimbursement arrangements and clearly the actual creditworthiness and
financial standing of the Issuing bank.
This process / decision seems to be increasingly heavily
regulated in the UK with an escalation of KYC (Know Your Customer) procedures
which are required to be carried out by the bank in the UK which is considering
adding the confirmation. This typically involves that bank carrying out a
series of increasingly exhaustive due diligence measures / actions including
checks that the beneficiary of the Letter of Credit is a valid trading entity
and that they are known to the bank. There may be additional checks on the
applicant (KYCC – Know Your Customer’s Customer) as well as any other parties
named within the L/C.
Clearly this process involves considerably more work than
previous controls and checks carried out by prospective confirming banks in the
UK, and in turn, may translate into delays in beneficiaries receiving their
Letters of Credit.
We would be interested in receiving your feedback, comments
or concerns.
