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.