What is the Bank’s Role?

Banks are utilised on a daily basis across the globe for many differing financial transactions, and in order to successfully execute a Collateral Transfer Agreement, two separate banks will be part of the execution process. Under a Collateral Transfer Agreement, one company, an asset owner or Provider of a Bank Guarantee, will instruct their bank, (the Issuing Bank) to transfer a Bank Guarantee to another bank, (the Receiving Bank), in favour of their client, the Beneficiary of the Bank Guarantee. The agreement is executed using Swift, (“Society for Worldwide Interbank Financial Telecommunications”), a bank to bank platform for sending financial messages, as detailed below.

Both the Issuing Bank and the Receiving Bank will have to conduct due diligence on the Collateral Transfer Agreement to make sure all local and international Financial Laws are being adhered to. When each bank has successfully completed the due diligence process, the Provider and the Beneficiary are free to complete the Collateral Transfer Agreement.

A Collateral Transfer Agreement provides for a Bank Guarantee to be transferred from the Issuing Bank, under instructions from their client, the Provider to the Receiving Bank for application the Beneficiary’s account. The bank to bank platform utilised for such a transaction is “SWIFT”, (“Society for Worldwide Interbank Financial Telecommunications”), which is a totally secure financial message system utilised by banks and financial institutions throughout the world.

In order for the swift system to be utilised within the Terms and Conditions of a Collateral Transfer Agreement, both the Receiving Bank and the Issuing Bank must be members of the Society for Worldwide Interbank Financial Telecommunications. Apart from certain individual transactions, all Bank Guarantees are transferred from bank to bank utilising the Swift system.

The mechanics are fairly simple, where the Issuing Bank will pre advise by Swift message to the Receiving Bank that they will be transmitting a Bank Guarantee for the account of their client. The Receiving Bank will respond by confirming via swift, they are prepared to accept the Bank Guarantee, and upon receipt of this message the Issuing Bank will transmit by Swift the Bank Guarantee to the Receiving Bank.