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Amendments from an issuing bank perspective

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Amendments from an issuing bank perspective

Learning objectives
This chapter describes the considerations for the creation of an amendment request by an applicant, the review of that request by the issuing bank and, subject to the issuing bank’s consent, the issuance
of an amendment.

By the end of this chapter, you should be able to:
◆◆ recognise the need to consider the content of an amendment request in the context of the terms and conditions of the documentary credit as a whole; and
◆◆ outline the process for the handling of an amendment request, from receipt through to the issuance or declining of the amendment request.

8.1 Pre-issuance considerations
8.1.1 The risks applicable to an issuing bank
The same types of risk exist for issuing an amendment as exist for the issuance of the underlying documentary credit.

◆◆ Applicant risk – when an amendment extends the validity of the documentary credit, or extends its payment terms (for example from 90 days’ sight to 180 days’ sight), or its amount is increased, the risk is
that the applicant will be unable to reimburse the bank for any payment or reimbursement that it is required to make in respect of a presentation that complies with the terms and conditions of the documentary credit
and the amendment, or in respect of a presentation where the applicant had previously issued a waiver of discrepancies and that waiver was acceptable to the bank.

◆◆ Financial crime – the amendment may increase the likelihood that the transaction is used to facilitate criminal activity, such as money laundering, fraud against the bank and / or other entities, terrorist financing, etc.
◆◆ Errors in conveying the requirements of the applicant – if the advice of the amendment received by the beneficiary is different from the content of the request submitted by the applicant, the issuing bank is bound to the beneficiary in terms of the advice received by the beneficiary. This is irrespective of any inability of the issuing bank to obtain reimbursement from the applicant, who may refuse to reimburse it as a result of a failure to fully incorporate its instructions.

8.1.2 The application of UCP 600, article 10, in respect of an issuing bank

An amendment to a documentary credit is made with the consent of the issuing bank. (Note that consent is also required from the beneficiary and a confirming bank, if any, but this is covered in later chapters.)
The fact that a bank previously agreed to issue a documentary credit at the request of its customer does not mean that it is required to amend it as requested by that customer. For example, a customer may submit
a request for an amendment that does not meet bank policy or which contravenes the applicable regulatory requirements. It might also be the case that a bank does not wish to extend further credit to its customer by
increasing the amount of the documentary credit, by extending its validity or by agreeing to extend the payment terms.

UCP 600, sub-article 10(b), makes the following statement.
b. An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. …
An issuing bank must therefore ensure that its amendment advice is complete and precise at the time of issuance.
UCP 600, sub-article 10(f), provides as follows.
Therefore, an amendment should not incorporate any condition that implies that it will be automatically accepted or rejected in the event that
f. A provision in an amendment to the effect that the amendment shall enter into force unless rejected by the beneficiary within a certain time shall be disregarded.

Pre-issuance requirements
the beneficiary does not provide a notification of acceptance or rejection within a specified period. The principle that an irrevocable undertaking cannot be amended by silence will prevail. Acceptance or rejection of the amendment is to be determined in accordance with UCP 600, sub-article 10(c).

c. The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended.

8.2 Pre-issuance requirements

8.2.1 Receipt of the completed amendment request It is normally the beneficiary who will request an amendment to the documentary credit by communicating its requirements to the applicant. If the applicant is in agreement, it should submit a request to the issuing bank to issue an amendment. It should be noted that an amendment might equally be required as the result of a specific requirement of the applicant.

The applicant may wish to consult the issuing bank regarding the actual text of the amendment, so that both the request to amend and the amendment itself are complete, precise and do not affect the workability of the documentary credit.

Any amendment request should be given to the issuing bank in good time, before the goods are to be shipped or the service or performance is to be provided. If the beneficiary ships goods before receipt of a required amendment, it bears the risk of being unable to make a complying presentation if the issuance of the amendment is delayed.

Most banks do not maintain a standard amendment request form and will accept a simple letter from the applicant indicating its requirements. Banks that provide an online service may also provide for electronic delivery of an amendment request.

It should be noted that this refers to an amendment request made by the applicant and not to an instruction. As mentioned in section 8.1.2, an issuing bank is under no obligation to take note of an amendment request.

8.2.2 Reviewing the amendment request against an agreed credit facility

A review of the amendment request against the credit facility will need to occur for certain criteria, such as where the amount, validity date, or the period for settlement is to be increased. Some credit facilities may also make reference to the type of goods that are to be covered by any documentary credit that is issued, and the type of transport document that is to be called for and the consignee details that are to appear thereon. If applicable, any changes to these criteria will warrant further review and may require separate internal approval.

Amendment requests to increase the number of originals or copies of documents, delete certain documents, add additional documents, or change the latest shipment date or period for presentation will not usually require examination against the credit facility.

8.2.3 Reviewing an amendment request against bank policy and regulatory requirements

The content of an amendment request should be examined against bank policy and regulatory requirements to ensure that the transaction, as amended, will remain in an acceptable form.

Changes, such as those relating to the goods description, ports of loading and discharge, airports of departure and destination, places of receipt and delivery, names of issuers of documents and the name of the beneficiary should be reviewed closely to ensure that all bank and regulatory requirements are met.

8.3 Reviewing the content of an amendment request

Fundamentally, an issuing bank is required to follow the applicant’s request to the extent that the bank is in agreement with its content and the content is not in breach of any regulatory requirements, as discussed in section 8.2.3

8.3.1 Error correction by the applicant

If an applicant has corrected its amendment request, before or after discussion with the issuing bank, such correction should be authenticated by the initials or signature of the customer’s authorised signatory (or
signatories). Where such a correction is made subsequent to a request sent electronically, it is preferable to have a separate message confirming the correction.

Any correction or alteration made by the issuing bank as a result of discussions over the telephone should similarly be confirmed in a separate message.

8.3.2 The workability of an amendment

Examination of the request and close liaison with the applicant at this stage are key to the continued success of the documentary credit transaction. Many of the problems that arise when documents are presented can be avoided if bank staff pay attention to detail and anticipate the problems that may occur before the amendment is issued.

Individual changes, deletions or additions that appear on a request for an amendment should be reviewed against each term and condition of the documentary credit – not only the most obvious term or condition – to ensure that the amendment will cover all related terms and conditions.
Example
A documentary credit requires a full set of bills of lading to be issued to order of the issuing bank, marked ‘notify applicant’ and ‘freight prepaid’.The bills of lading are to indicate that shipment has been effected from
Bangkok to Shanghai. The trade term was stated to be ‘CFR Shanghai’. A latest shipment date is given of ‘30 October 20XX’.

Following some discussions, the applicant and beneficiary agree that the presentation of a full set of bills of lading is not the most appropriate document. Instead, the goods should be collected by the applicant’s freight forwarder and a certificate of receipt issued.

As a consequence, the applicant submits an amendment request in the form ‘Delete “Full Set Bills of Lading … Prepaid” and insert “Forwarder’s Certificate of Receipt” ’, and indicates that all other terms and conditions
are to remain unchanged.
On its face, an amendment in the example appears to solve the problem of the inappropriate transport document. However, the amendment request
◆◆ delete the routing from Bangkok port to Shanghai port;
◆◆ change the emphasis from a latest shipment date to one of a latest date for receipt of the goods (if a forwarder’s certificate of receipt is issued, there is only a date of receipt of the cargo and not a shipment date);
◆◆ address the issue of the consignee and notify party information (a freight forwarder’s certificate of receipt is not a document that should be issued to order of a named entity); or
◆◆ address whether the Incoterm is still applicable.

Without the amendment addressing these issues, the credit will not be issued in a workable form, and leaves the examination of documents open to differing levels of interpretation by the issuing bank, nominated bank
and (not least) the beneficiary.

8.4 The routing of an amendment
UCP 600, sub-article 9(d), provides as follows.

d. A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.
It should be noted that an advising bank, or second advising bank, is under no obligation to advise the beneficiary of any amendment that it receives.
If it declines to advise the amendment, it must inform the bank from which it received the amendment without delay. In the case of an advising bank, this means informing the issuing bank. In the case of a second advising
bank, this means informing the advising bank, which should then inform the issuing bank.

There is no requirement for a bank to indicate the reason(s) for its decision not to advise the amendment. Even if such bank declines to advise the amendment, the issuing bank is still bound by its terms and conditions (see section 8.1.2), and if the beneficiary wishes to make use of it, the documents will need to be sent to the issuing bank for honour.

8.5 Preparing an amendment
When bank staff have completed their internal procedures and processed the request, the amendment is ready to be prepared.

Transmitting an amendment
If the amendment data is already captured in an electronic system, the bank staff need only complete the additional data fields required in order to produce the amendment. If, however, the request is received by either mail or telex, it is usually necessary for all of the content to be keyed into the issuing bank’s system. In addition to the details supplied by the applicant, the issuing bank may need to include some additional bank-to bank information that may be linked to the text of the amendment.

The amendment request and the actual amendment, as issued, must match and be in accordance with the applicant’s request, and it is the responsibility of the issuing bank to ensure that this is the case before transmitting or sending the amendment to an advising bank or the beneficiary.

8.6 Transmitting an amendment
Recall, UCP 600, sub-article 10(b), provides as follows.
Once the amendment is prepared and the issuing bank’s internal release procedures are completed, it will be transmitted by SWIFT or telex, or delivered by mail or courier, to the advising bank to which the documentary
credit was sent (possibly with instructions to send it via a second advising bank that was also involved in the advising of the documentary credit) or directly to the beneficiary. A copy of the transmitted amendment will be made available to the applicant in hard copy or electronic form, together with the issuing bank’s advice of charges, if applicable.

The applicant should be encouraged to read the amendment carefully, to ensure that it matches its request. If it does not match, the applicant should advise the issuing bank without delay. If the amendment does not
match the instructions, any attempt to rectify the error may be considered a further amendment, which will also be subject to the consent of the beneficiary and the confirming bank, if any.

The vast majority of amendments are issued in SWIFT MT707 format, and the transmitted details are considered to be the operative amendment. It is extremely rare for issuing banks to prepare a mail confirmation if details of the amendment have been transmitted in full.

The flow for issuing a documentary credit in Figure 7.1 is identical for amendments, other than that the applicable SWIFT message type is MT707 instead of MT700. In the example provided in Chapter 7, there is not only an advising bank, but also a second advising bank.

b. An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. …

8: Amendments from an issuing bank perspective

Figure 8.1 contains details of an amendment made to the terms and conditions of the documentary credit that appears in Figure 7.2. Note the structured nature of the MT707 message in that some fields match those in the MT700.

Figure 8.1 Example of an amendment to an MT700 message
An MT799 message may also be used when the MT707 is not appropriate.
Both of these SWIFT message types are authenticated messages.
An MT199 message is authenticated, but it is free format and can be used
for anything, while MT999 is an unauthenticated message type. A message
providing details of an amendment sent by telex must be authenticated,
and often the issuing bank will have testing arrangements with the advising
bank. If such direct testing arrangements do not exist, the issuing bank will
send the message to a correspondent bank that has testing arrangements,
with a request to pass on the amendment authenticated between such
correspondent bank and the advising bank.
If the amendment is sent in hard copy form, the signature(s) appearing
thereon can be authenticated against specimens held with the advising
bank.
LOC:XX0015 INSWFT MSG-700 TRN:B0000-1000
{1:C20FUENXITWAXXX7391997305}
{2:63910038894462GHQULITXNCAX529114758899301638291S}


MT707
FROM:
FINANCING BANK, FRANKFURT, GERMANY
20: Senders Reference
00/PP/1278
21: Receivers Reference
EXP990088
23: Issuing Bank’s Reference
00/PP/1278
31C: Date of Issue
XX0331
30: Date of Amendment
XX0422
26E: Number of Amendment
01
59: Beneficiary (before this amendment)
DINNER WORLD INC
31E: New Date of Expiry
XX0731
44C: Latest Date of Shipment
XX0710
79: Narrative
+PRE-SHIPMENT INSPECTION CERTIFICATE NOW TO BE ISSUED BY PRISTINE INSPECTION SERVICES
+INSERT INSURANCE CERTIFICATE OR POLICY SHOWING THE ASSURED AS FINANCING BANK AND ISSUED FOR 110% OF
THE CIF VALUE OF THE GOODS COVERING ICC (A), WAR RISKS AND STRIKES RISKS
+INCOTERM NOW TO READ CIF HAMBURG INCOTERMS 2010
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED
-} {5:MAC:11100011} {CHK:Z628US9107J4}
Questions
© ifs University College 2015 125
The issuing bank should not send a telex to the advising bank and its
correspondent with a request to the advising bank to verify the test with
the correspondent.
As previously mentioned, once an amendment has been issued, the issuing
bank is irrevocably bound by the amended terms. However, it may be
some time before it becomes aware of whether or not the beneficiary has
accepted the amendment.
It is therefore important, when an amendment is reducing the value of a
documentary credit, that an issuing bank does not reverse any liabilities
recorded against the applicant’s credit facility pending notification that
the beneficiary has accepted the amendment. Usually, this evidence will
take the form of a presentation of documents that meets the terms of
the original documentary credit and the amended terms. The beneficiary
may also provide a separate notification of acceptance (or rejection) of an
amendment, but this is not a common occurrence.
Questions

  1. An amendment is subject to the consent of whom?
    A. The beneficiary
    B. The issuing bank and the beneficiary
    C. The issuing bank, the beneficiary and any confirming bank
    D. The issuing bank, the beneficiary and any nominated bank
  2. Which of the following is true of an amendment issued stating that it will
    be deemed to have been accepted by the beneficiary unless it rejects the
    amendment within seven calendar days of its date?
    A. The inclusion of this condition is an acceptable practice and is a way
    of determining whether the beneficiary has accepted or rejected an
    amendment.
    B. The inclusion of this condition is not acceptable and is not one of
    the ways of determining whether the beneficiary has accepted or
    rejected an amendment.
    C. The inclusion of this condition is an acceptable practice if inserted
    by the advising bank in its advice of the amendment and is a way
    8: Amendments from an issuing bank perspective
    126 © ifs University College 2015
    of determining whether the beneficiary has accepted or rejected an
    amendment.
    D. The inclusion of this condition is an acceptable practice if inserted
    by the confirming bank in its advice of the amendment and is a way
    of determining whether the beneficiary has accepted or rejected an
    amendment.
  3. When is an issuing bank irrevocably bound by an amendment?
    A. When it approves the request of the applicant
    B. When it issues the amendment
    C. When the advising bank or confirming bank advises the amendment
    D. When the beneficiary receives the amendment
  4. An amendment decreases the value of a documentary credit. When
    should the credit facility amount be reduced accordingly?
    A. When the amendment is issued
    B. When the advising bank or confirming bank advises the beneficiary
    of the amendment
    C. When the beneficiary provides its consent to the amendment by way
    of a notification of acceptance
    D. When the beneficiary provides its consent to the amendment by way
    of a notification of acceptance or the presentation of documents that
    comply with the original documentary credit and the amendment
  5. ‘If a second advising bank decides not to advise an amendment to
    the beneficiary, it must inform the issuing bank without delay.’ Is this
    statement true or false?
    A. True
    B. False

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