Know your customer. Risks for banks and exporters

We have just received an interesting call from a frustrated exporting client. The company sells a range of power products to global markets, including the Middle East, Asia and Africa, where letters of credit are often used to secure payment.

Letters of credit have for many years been advised to the company through various banks, depending on the correspondent relationships held with the respective overseas issuing banks. My client recently received a letter of credit advised through a major UK high street bank (who they do not bank with and through whom L/Cs have been advised in the recent past), inviting them to present documents to them following shipment.

The L/C was not confirmed and was stated to be ‘available with any UK bank by negotiation.’ (See our previous article regarding the role of an advising bank).

At the time of presentation, our client was told that the UK advising bank was no longer able to accept documents from them due to their KYC (Know Your Customer) compliance policy. The company was instructed to present the documents to their own bank.

Upon investigation, I was told by the bank concerned, that their ‘KYC’ policy relating to ‘anti money laundering’ and financial crime has become far more stringent, resulting in their refusal to handle transactions for non-banked customers for whom no checks have been undertaken*.

We understand that whilst this is not currently an approach taken by all UK banks, there are several high profile institutions adopting this policy with more likely to follow.

*There is a solution here, in that the bank concerned is prepared to accept a covering letter from the company’s own bankers with the L/C documents. This will provide comfort to them that the relevant KYC checks have been undertaken. Alternatively, if the company concerned are happy to do so, they can undergo the various checks directly with the bank advising the L/Cs. This will be useful if they receive future L/Cs advised through the bank in question.

The main issue however, is that the exporter was not aware of the bank’s refusal to handle the transaction as it stands until the point of presentation. They have just two days left in which to present complying documents!

We have been aware of the increasing controls and checks undertaken by banks for several years following the publication of the FCA Thematic Review in July 2013 and we published our own article – Financial Crime – Issues For Banks and Traders – highlighting the issues in December 2013.

Banks have continued to exercise caution when handling international transactions, particularly on behalf of non-customers, but today’s story represents yet another challenge for exporters who are unable to get L/Cs advised through their own bank.

If you are an exporter concerned with receiving letters of credit through favoured banks, we would welcome your feedback and will be happy to help.

Contact us for more information:

Email: info@mjhayward.co.uk

Phone: 0800 043 4052

 

 

2017-08-29T14:09:34+00:00 August 29th, 2017|