The Banks Role

Banks play a fundamental role in todays’ financial transactions, and one major function is the transfer of Bank Guarantees from one bank to another, utilising the bank to bank platform known as SWIFT, (“Society for Worldwide Interbank Financial Telecommunications”), and this is especially important when executing the instructions contained in a Collateral Transfer Agreement.

A Collateral Transfer Agreement is where one company (the Provider) will instruct their bank, (the Issuing Bank), to transfer via SWIFT, a Bank Guarantee to another bank, (the Receiving Bank), for credit to another company, (the Beneficiary). Both banks play a crucial in this transaction as first they must due diligence the Collateral Transfer Agreement to ensure all international and local Financial Laws are not being breached.

The second and equally important function, is the transmitting of the Bank Guarantee from the Issuing Bank to the Receiving Bank, and for this transaction they will utilise SWIFT, (“Society for Worldwide Interbank Financial Telecommunications”), which is a global membership platform for sending secure and authenticated financial messages between banks and financial institutions. It is therefore essential that any company party to a Collateral Transfer Agreement, ensures that their bank is a member of SWIFT.

The SWIFT system use dedicated messages for transmitting financial instruments such as a Bank Guarantee, and it is usual for the Issuing Bank to transmit a pre advice to the Receiving Bank, prior to transmitting the Bank Guarantee. The Receiving Bank, upon receipt of the pre advise will confirm by SWIFT they will accept the Bank Guarantee, at which point the Issuing Bank will SWIFT transfer the Bank Guarantee to the Receiving Bank.