The Advising Bank Dilemma
By Shahriar Masum
[Republished from LC Monitor with the kind consent of the author.]
A brief case to start with, ‘Bank Z received a request for transferring a credit. It was an MT700 sent to another bank, which then sent a printed copy to bank Z by mail. Bank Z was designated as the ‘advise-through bank.’ Under field 47A, the credit says, ‘this LC is transferrable through the advising bank only.’
Bank Z considered their position as that of second advising bank and decided to refuse to transfer the LC. In their opinion, the LC can only be transferred by the bank that received the MT700.
After few days Bank Z receives an MT 999 from the issuing bank stating:
Since we do not have authenticated SWIFT with you, we sent the LC to xxxxx bank suggesting your bank in the field of advise-through bank. As an advising bank you are authorized to transfer. Considering the 999 message, Bank A transferred the credit.
End of the case here.
Now whether Bank Z considered the MT 999 as an amendment or not, I am not sure. But it appears that the issuing bank considered the ‘advise through bank’ as an advising bank while the UCP says that an ‘advise- through bank’ is the second advising bank and therefore does not enjoy the rights vested as an receiver of an MT700 message.
So the question is: what is the status of an advise-through bank?
Definition of Advising Bank
In my opinion, there could be two approaches to the definition of an advising bank;
1. It is the bank that has received the credit directly from the issuing bank, or
2. It is the one that has ultimately advised the credit to beneficiary
Literally an advising bank should be one that advises the credit to the beneficiary and this is apparently what UCP 600 article 21 says. But further consideration will show that the UCP 600 drafters may have intended for the definition in number 1 above.
The Main Role of an Advising Bank
As per UCP 600, the job of the advising bank is quite simple. To advise, which literally means ‘Information communicated.’ If conveying the message of the issuing bank was the sole purpose of an advising bank, a courier service or yahoo mail would have been the best and cheapest choice as an advising bank. In fact another primary job of an advising bank is to authenticate the issuance of a credit or amendment. This view is supported in UCP 600 article 9b2. Interestingly a bank could still be an advising bank by skipping this important function as mentioned in UCP 600 article 9 (f). Therefore, from these two related articles we can conclude that a bank must ‘at least’ communicate the terms of the credit to the beneficiary to become an advising bank.
Definition of Second Advising Bank
There is no straight definition of a second advising bank in the UCP 600. There is however an ‘indirect’ one which reads, ‘An advising bank may utilize the services of another bank (‘second advising bank’) to advise the credit and any amendment to the beneficiary.’
It’s not clear from this definition whether the advising bank will use the service of another bank at the request of issuing bank or at its own discretion. However, if we look at the evolution of the second advising bank, it appears to be the advising bank’s decision whether or not to use another bank’s service. Therefore, under the definition of UCP 600 article 2, the second advising bank is not an ‘advising bank’ although it performs the same job (i.e., authentication and communication) as that of the advising bank. Therefore we find a third criteria of an advising bank, ‘its services are requested by the issuing bank.’ So here is a change in the conclusion set out earlier:
Therefore, from these two most articles we can conclude that a bank must ‘at least’ be asked by the issuing bank to communicate the issuance of the credit to the beneficiary in order to become an advising bank.
SWIFT’s Advise-Through Bank
There is no definition of advise-through bank in the UCP 600. There is, however, one in the SWIFT rules, which says:
‘Identifies the bank, if different from the receiver, through which the documentary credit is to be advised / confirmed to the beneficiary.’
The important aspect of this definition is
1. this could be a the same bank as the advising bank,
2. this could be a different bank, and
3. this bank advises a credit.
There is another aspect that has not been addressed, which concerns the issuing bank. All of the above is according to the will of the issuing bank. If the issuing bank suggests the name of a bank that is different from the receiver of the MT 700, the new bank will be characterized as ‘a bank, requested by the issuing bank, to communicate the issuance of the credit to the beneficiary of the credit.’
Humm ... don’t you think this definition is same as that of the advising bank? Of course it is and this analysis suggests that the ‘advise-through bank’ is actually the ‘advising bank.’ One credit, two advising banks!
Full of confusion, I looked for experts’ opinions on this issue and that caused me greater confusion. In frequently asked questions, Mr Gary Collyer suggested that an advise-through bank would be considered a second advising bank.3
However, the definition of the advise-though bank would be the same as that of the advising bank even for a credit issued by mail. In fact, if the SWIFT definition of field 57a is changed to 'second advising bank,' that would further conflict with UCP 600 article 2, which emphasizes on the ‘request’ of the issuing bank.
The puzzle, however, can be solved if the term ‘at the request’ is further qualified as ‘at the direct request.’ This would allow only the receiver of the MT 700 to be an advising bank. In my opinion, this is what the drafters may have intended and what the definition of advising bank should be.
The ‘direct request’ conjecture would have solved the existing problem with SWIFT’s ‘advise-though bank.’ But unfortunately it does not and this is for a different reason: ‘the confirming bank.’ The definition of field 57a includes ‘confirming bank.’ As a result where SWIFT field 494 says ‘confirm’ and there is a field 57a, the bank mentioned in 57a is also authorized to confirm: thus, a second confirming bank! I also need to mention that article 10b casually suggests that the confirming bank is the advising bank.
Although the above analysis may be logically true, two advising banks will indeed create BIG chaos. So I think it’s good to read advising bank and advise-through bank simply and recognize the advise-through bank as a second advising bank.
1 UCP 600 defines advising bank as ‘Advising bank means the bank that advises the credit at the request of the issuing bank.’ Interestingly this does not say “advise the credit [to the beneficiary]” leaving a room for the second advising bank concept. However article 9a did say ‘advised to a beneficiary.
2 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 …
3 FAQ 9.1 ’The advise-through bank would be the second advising bank as far as the UCP 600 is concerned. SWIFT should probably change the header to field 57A to reflect the second advising bank and its role under UCP 600.”
4 SWIFT 49 is defined as “This field contains confirmation instructions for the Receiver.”