MT700 or MT760 or ISO 20022 – that’s the question (2024)

I confess that I have been blind as a mole, but it is betterto learn wisdom late than never to learn it at all.'

Sherlock Holmes

(The Man with the Twisted Lip)

I must admit that I have always been an “LC Guy” … It is notthat I do not like guarantees or collections – but somehow I find it morefascinating to work with LCs.

In this Blog Post I will focus on guarantees – and reveal myreluctance towards it – and also why things are beginning to change….

Since the day I started working with trade finance I neverunderstood why a guarantee had to be worded like it was London year 1890. Whynot just say things in a simple and direct way? A guarantee is in many ways thesimplest instrument in the “trade finance family:” It is issued by theguarantor – and if (which is rare) a complying demand is made, the guarantorpays.

Simple as that! However in reality it is not so. Often thereare long – hard to read (legal) texts that puts into question what actually isto be presented to the guarantor in order to get paid.

And then there is the “form” of the guarantee. Often it is asigned letter (I guess for the purpose of underlining how old-fashioned itreally is!) – or SWIFT can be used. Here it is primarily the MT760 message typethat is used. This is a message type that is basically one big “free textfield” – i.e. no real standard. And again: Worded like Sherlock Holmes wouldhave worded it.

There is however another type of “guarantee” that are used;in some parts of the world “more” – in other parts of the world “less.” That isthe Standby LC.

In my article "Guarantees versus standby letters ofcredit” (DCinsight Volume 18 No 1 – January-March 2012) I compare the guaranteeto the Standby LC – so I will not do that here.

The point of bringing up the Standby LC is that this is aguarantee in the form of an LC. This means (amongst other things) that anotherSWIFT message type comes into play – namely the MT700 (Issue of a DocumentaryCredit). This message type has more fields than the MT760. The MT700 is oftenused for Standby LC – some banks may however face some challenges. For example:

Often the MT700 is available in the banks “LC system” andthe MT760 is available in the banks “Guarantee system.”

Since a Standby LC it is in reality a guarantee; fees mustbe calculated as any other guarantee – i.e. in the banks guarantee system –which would not allow the use of a MT700.