SWIFT thinking: what the MT760 changes mean for standby letters of credit

In the geographically dispersed world of international trade finance, efficient communication is crucial. 

This is why the Society for Worldwide Interbank Financial Telecommunication – better known as SWIFT – created its messaging types, which have long served as a means for banks around the globe to communicate and facilitate transactions. 

Among these messaging types, the MT760 messages – recently updated to enhance efficiency, compliance, and fraud prevention – are significant in issuing standby letters of credit and bank guarantees. 

To learn more about this vital message type, explore the implications of these changes, and see how they will impact standby letters of credit, Trade Finance Global (TFG) spoke with Ledia Dervishaj, assistant manager of trade finance operations, standby letters of credits and global wholesale operations at Scotiabank Global Banking and Markets.

Swift messaging types for trade finance

There are nine different SWIFT message types (MT), each serving a specific purpose, categorising various interactions among financial institutions. For trade finance, category seven messages, specifically MT760, are the most common. 

MT760 messages are used to issue standby letters of credit and bank guarantees for beneficiaries outside their institution or country. They serve as a means of communication and to establish payment obligations between the parties involved in a transaction.

By using these authenticated messages, banks can securely communicate payment obligations and facilitate trade finance transactions with confidence.

In recent years, the rules that govern this messaging type have received an update.

New rules for MT760

The recent changes to the MT760 rules were not driven by any inherent flaws in the previous system but rather by the need to improve and enhance the process based on the collective experience of industry specialists. 

SWIFT, in collaboration with trade finance colleagues, gathered suggestions and opinions to identify areas for improvement. The primary focus was to simplify and streamline the transaction process, enhance authentication, and effectively detect fraudulent messages. 

Previously, all transaction details were contained within a single field, requiring extensive reading and analysis. The revised rules have separated many of these transaction elements into their own message structure, making it easier to verify, authenticate, and identify any discrepancies or compliance issues. 

Dervishaj said, “Now that everything is separated, it makes our lives very easy in terms of authentication and checking for fraudulent messages. We can notice anything that goes wrong with the transaction regarding compliance and the sanctions that are in place, which has enhanced and improved our processes.”

Another notable aspect of the MT760 rule changes is the introduction of additional mandatory fields, which are essential for the message to pass through the system successfully. If any mandatory fields are missing, it acts as a red flag, indicating a potential issue with the transaction.

Previously, five fields were mandatory for an MT760 message to be processed, but the new rules have increased this number to 13. This addition simplifies the transaction structuring and makes it easier for banks to ensure all necessary information is included.

Ultimately these changes serve to enhance the efficiency and accuracy of trade finance processes for all involved.

Continual evolution for a changing future

While the MT760 rule changes have significantly improved efficiency and brought about positive transformations in issuing standby letters of credit and bank guarantees, more changes are expected on the horizon. 

SWIFT is currently evaluating potential modifications to the messaging types 798 and 761, which are primarily used by customers requesting the issuance of letters of credit. 

The organisation aims to gather feedback and input from banks to identify areas for improvement, reduce errors, and enhance the overall transaction structure and procedure.

The separation of transaction details into specific message structures and the expansion of mandatory fields have improved efficiency, compliance, and fraud prevention in trade finance operations.  

Dervishaj said, “SWIFT’s work adding in more fields with constricted data entry points is quite important in preparing the world for the bigger aim of digitalising trade.”

By embracing these changes, banks can enhance communication capabilities, ensure secure payment obligations, and facilitate smoother trade finance transactions. 

SWIFT’s commitment to gathering feedback and continuously refining the messaging types reflects the industry’s dedication to advancing digitalisation and strengthening international trade finance processes.

As we move forward, the world of trade finance will continue to evolve, and staying abreast of these changes will be crucial for professionals in the field.

Courtesy: tradefinanceglobal.com

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