In November, SWIFT will release a new set of trade finance messages to facilitate paperless processing of international guarantees. The challenges for corporates lie in communicating with all their counterparties in a common language, increasing efficiency and, ultimately, having a consolidated view of their liabilities. In this interview, Malik Dahmoune, director of Finelia Trade Finance Software, explains the key points.


– What are the latest developments in the digitization of trade finance operations?

– The new development for 2020 involves bank guarantees for contracts. SWIFT has long been preparing to reform the messaging for guarantee processing and these new standards will be released in November. Initially planned for 2019, this redesign will facilitate the processing of international guarantees, speed up processes, and reduce paper mailings. Major global banks have worked hard to adapt their back office systems to process these new message formats.


– Why are international guarantees so far behind in the digitization process?

– Given their flexibility, not to mention their complexity, international guarantees have lagged behind in the move to digitize trade finance transactions. International guarantees are contractual. In addition, they are mostly issued indirectly; that is, they are issued by a local bank in the country of the beneficiary and covered by a counter-guarantee from one of the banks of the instructing party. This makes it complicated for the instructing party to track all of its liabilities.

In fact, in their current version, SWIFT messages dedicated to international trade transactions do not incorporate the full complexity of guarantees, unlike messages for processing documentary credits.

Specific fields are missing some information. It is not possible to add extension messages or to monitor local guarantees. These are all major disadvantages for the use of guarantee messages, even in the context of interbank communication.

For example, as no satisfactory electronic solution currently exists for instructing the issuance of guarantees, they are still frequently sent by mail. This involves several disadvantages, including wasted resources, risk of loss or delay, and tedious manual processing.


– What is going to change in November?

– New messages will complement the SWIFT range and enable all types of cases to be processed. As a result, instructions to extend a guarantee have been enhanced by a message format that captures more content. The response to an amendment request is also taken into account now, as is the refusal of payment and extension. It will therefore be possible to communicate simply via structured messages adapted to the process automation.

In addition, SWIFT will change the structure of several existing messages (see box below) with the same goal in mind. The receipt of guarantees will also benefit from the redesign, with several messages added, enabling more communications to be processed.

These new, more structured, messages will finally enable importers, exporters and trading firms to communicate with all of their banks in a common ‘language’ that is recognized by all stakeholders. There is no doubt that these changes will accelerate processes and result in reduced costs. In addition, direct communication via MT 798 messages has the advantage of limiting errors and misunderstandings between partners. Finally, if the processing is carried out using multi-bank software, the instructing party’s consolidated visibility of their liabilities, in relation to their direct  and indirect banks, will certainly be greatly improved.


– How can corporates prepare to deal with paperless international guarantees?

– The issuer must either adapt its IT system to the new standards or use software that processes all SWIFT MT 798 messages. As a software vendor, we emphasize the benefits of a multi-bank solution that is dedicated to processing and monitoring trade finance transactions. As data analysis becomes critical in optimizing risk management, businesses need a tool that provides a consolidated view of all of their trade obligations. To this end, we have worked to ensure that our solution integrates the automatic cancellation of guarantees that have reached their expiry date, in accordance with the Uniform Rules for Demand Guarantees (URDG 758).

The process of digitizing contract documents should lead to a reduction in transaction time and processing costs due to the integration and extension of different trades. In the long run, better systems integration and the increased use of dedicated tools should encourage product standardization and process automation. For businesses, this evolution appears to be a key element in the unification of data management processes, which is essential for managing risks and liabilities.

SWIFT improves the functionality of its guarantee processing messages

The issuance guarantee application message (MT 760) will soon be followed by seven extension messages containing all the terms of the guarantee, making any additional order to issue a guarantee unnecessary. In addition, while messages were previously made up mostly of empty fields, they will now adopt a new structure. The index message will mainly be used to integrate structured information (such as amount, parties and expiry details), while the body of the message will be divided into two parts and will provide information on the terms of the liability of the instructing bank and the conditions for the possible liability of the issusing bank. It will therefore be possible to monitor the liability of a local issuing bank via SWIFT messages, in the same way as for the liability of the instructing party’s bank. This will result in greater visibility on liabilities, which are often opaque and not suitable for automated processing. Amendment messages are also enhanced to incorporate changes relating to the local bank’s liability. There are other changes that focus on multiple messages, including a field referring to a file transferred by another channel (such as FileAct) and the addition of special characters for long fields.

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