To What Extent is a Confirming Bank’s Undertaking Independent of the Issuing Bank’s Undertaking to the Beneficiary?

Confirmation to any modern-day documentary credit is an essential risk mitigation tool for a beneficiary that enables it to deal with its customer across the globe. Adding confirmation to a credit enables a beneficiary to mitigate country risk and bank risk of the issuing bank. When a credit is confirmed by a bank preferable or acceptable to a beneficiary, usually in a different country, this confirmation provides the beneficiary a definite undertaking from the confirming bank, in addition to that of issuing bank, to get payment for a complying presentation. This undertaking is autonomous from the confirming bank’s ability to attain reimbursement from the issuing bank. This independence stands even if the issuing bank becomes insolvent and/or the country turns into a default state.

To maintain autonomy between the undertaking of the issuing bank and confirming bank, UCP600 contains two separate rules (Article 7 and 8) in addition to its Article 2 definitions of the term ‘Confirming Bank’ and the concept of ‘Confirmation’.