Introduction

In international trade and structured finance, Standby Letters of Credit (SBLCs) transmitted via SWIFT MT760 are among the most reliable instruments for securing performance and payment obligations.
The advising and confirming banks play pivotal roles in authenticating, securing, and reinforcing the credit, ensuring that all parties—especially the beneficiary—are protected from financial or operational risk.

This article explores the distinct responsibilities of advising and confirming banks, their compliance functions, and their role in enhancing trust and payment assurance in global SBLC transactions.

Keywords: advising bank authentication, confirming bank guarantees, risk mitigation, second-tier undertaking, message authentication protocols
Related terms: SWIFT message verification, secondary bank guarantee, interbank communication, compliance assurance

I. Understanding the Roles in MT760 SBLC Transactions

1. Advising Bank: Authentication and Notification

The advising bank acts as the communication intermediary between the issuing bank and the beneficiary.
Its main role is to:

• Authenticate the MT760 SBLC via SWIFT message verification and ensure that it originates from a legitimate issuing bank.

• Notify the beneficiary of the instrument’s receipt, confirming that all message contents align with agreed terms.

• Verify compliance with international trade rules such as ISP98 or UCP 600, depending on the SBLC structure.

Importantly, the advising bank does not bear payment responsibility—its role is limited to authentication and advisory communication.

2. Confirming Bank: Independent Payment Undertaking

The confirming bank adds its own irrevocable undertaking to honor payment if the issuing bank fails to do so.
This effectively transforms the SBLC into a dual-bank guarantee, offering beneficiaries a second level of security.

Key responsibilities of the confirming bank include:

• Providing a second-tier payment guarantee under the same terms as the issuing bank.

• Performing due diligence on the issuing bank’s creditworthiness and compliance.

• Honoring payment immediately upon receipt of compliant demand documents, even if the issuing bank defaults.

This confirmation is often requested by beneficiaries when the issuing bank is located in a high-risk jurisdiction or when credit confidence is required to finalize a transaction.

II. Interbank Communication and Authentication Protocols

Both advising and confirming banks rely on SWIFT network protocols to ensure message integrity, authenticity, and traceability.

Key verification elements include:

1. MT760 authentication through BKE (bilateral key exchange) or RMA (Relationship Management Application).

2. Message sequence validation to confirm proper transmission order.

3. Cross-checking field data such as amount, beneficiary details, and expiry date for consistency.

4. Compliance screening under anti-money laundering (AML) and sanctions frameworks before advising or confirming.

These procedures ensure zero tolerance for fraudulent or spoofed messages, safeguarding all involved parties.

III. Risk Mitigation through Confirmation

The confirming bank’s guarantee significantly enhances transaction credibility by reducing several categories of risk:

This additional security layer is particularly crucial for cross-border projects, commodity trade deals, and infrastructure financing, where large exposures are common.

IV. Best Practices for Banks and Beneficiaries

To maximize the protection and efficiency of SBLC operations:

• Select reputable advising and confirming banks with established SWIFT relationships.

• Ensure complete message authentication under MT760 SWIFT standards.

• Request confirmation only when necessary, as it involves additional fees and bank exposure.

• Maintain clear documentation outlining the rights and responsibilities of each bank involved.

• Ensure compliance with ISP98, UCP 600, and FATF AML standards.

V. Example: MT760 SBLC Confirmation Workflow

1. Applicant and beneficiary agree on SBLC terms.

2. Issuing bank sends MT760 to advising bank via SWIFT.

3. Advising bank authenticates and notifies the beneficiary.

4. Beneficiary requests confirmation if extra payment assurance is needed.

5. Confirming bank adds its undertaking and notifies both parties.

6. Upon default or demand, the confirming bank honors payment independently.

Conclusion

In the landscape of MT760 SBLC transactions, advising and confirming banks serve as guardians of trust, authenticity, and payment integrity.
The advising bank ensures the legitimacy and secure delivery of the SBLC, while the confirming bank adds a binding financial layer that enhances the instrument’s reliability.

Together, they transform the SBLC into a globally accepted mechanism for risk mitigation, cross-border confidence, and seamless trade execution—hallmarks of a modern, secure financial ecosystem.

FAQ: Role of Advising and Confirming Banks in MT760 SBLC

Q1 — What is the main function of the advising bank?
To authenticate and deliver the SBLC message to the beneficiary without assuming financial liability.

Q2 — When is a confirming bank needed?
When the beneficiary requires an additional guarantee from a reputable international bank for payment assurance.

Q3 — What protocols ensure authenticity of MT760 messages?
SWIFT BKE/RMA authorization, compliance screening, and internal bank validation processes.

Q4 — Does confirmation increase transaction cost?
Yes. It adds confirmation fees proportional to the risk and exposure of the confirming bank.

Q5 — Which international rules apply?
Primarily ISP98, supported by ICC guidelines and local banking compliance frameworks.