For those companies seeking to utilise a Bank Guarantee, they must enter into a contract with another company, referred to as a Collateral Transfer Agreement. The company that is the owner of the Bank Guarantee is alluded to as the Provider, and the company receiving the Bank Guarantee is alluded to as the Beneficiary. The Bank Guarantee is transferred via the bank to bank platform SWIFT, (“Society for Worldwide Interbank Financial Telecommunications”).
Without banks there would be no financial transfers which is why they play such an important role in a Collateral Transfer Agreement. The Provider’s bank is referred to as the Issuing Bank and the Beneficiary’s bank is referred to as the Receiving Bank, and not only do both banks have to carry out due diligence on the Collateral Transfer Agreement to confirm that it complies with local and international Financial Laws, they are there to execute the instructions contained within the Collateral Transfer Agreement.
The Issuing Bank on receipt of instructions from the Provider, will execute the instructions of the Collateral Transfer Agreement, and transfer a Bank Guarantee to the Receiving Bank for the account of the Beneficiary. The platform utilised for the transfer is universally known as SWIFT, (“Society for Worldwide Interbank Financial Telecommunications”), which is a secure and dedicated international financial message system, and is used by banks and financial institutions in most countries throughout the world.
The Society for Worldwide Interbank Financial Telecommunications has a membership roster, and only banks who are members can execute financial instructions on a bank to bank basis. It is incumbent therefore, for both the Provider and the Beneficiary to ensure that their bank is a member of SWIFT, so the instructions contained within the Collateral Transfer Agreement may be carried out.
The SWIFT system provides a dedicated service for banks to transmit Bank Guarantees, to each other and it is usual for the Issuing Bank to pre advise by SWIFT message that a Bank Guarantee will be transmitted in favour of their client. The Receiving Bank responds by SWIFT message confirming they will accept the Bank Guarantee, and finally the Issuing Bank will transmit by dedicated SWIFT message, the Bank Guarantee.