The underlying mechanics of a Collateral Transfer Agreement, is undertaken by two banks, one bank – the Issuing Bank representing the Provider of the Bank Guarantee, and the other bank – the Receiving Bank, representing the Beneficiary of the Bank Guarantee. The agreement is executed utilising the bank to bank platform known as Swift, (“Society for Worldwide Interbank Financial Telecommunications”).
The roles of the two banks are crucial in executing a Collateral Transfer Agreement on behalf of their respective clients, and before any transaction(s) can take place, both banks’ must engage in extensive due diligence of the Collateral Transfer Agreement. This ensures that the contract complies with Financial Law in each relevant jurisdiction, and once both banks’ have successfully completed their due diligence, the Provider is then free to instruct their bank to execute the Collateral Transfer Agreement as per the instructions contained therein.
Under the Terms and Conditions of a Collateral Transfer Agreement, the Provider will instruct the Issuing Bank to transfer a Bank Guarantee to the Receiving Bank, in favour of their client, the Beneficiary. To facilitate the transfer of the Bank Guarantee, the Issuing Bank will utilise Swift, which is a secure international financial message system used by all major banks throughout the world.
Both banks must be members of “Swift” in order to execute the Collateral Transfer Agreement. It is usual for the Issuing Bank to pre advise the Receiving Bank, via swift, that they will be transferring a Bank Guarantee favouring their client. On receipt of the pre advise the Receiving Bank will confirm by Swift to the Issuing Bank they are ready to receive the Bank Guarantee, and upon receipt the Issuing Bank will transfer by Swift the Bank Guarantee.