Standardising the bank guarantee texts

With bank guarantee texts containing diverse clauses and long text passages, banks and guarantee beneficiaries alike could benefit from standardisation and structured data. This would reduce the instrument’s complexity and reduce unclarities. At minimum, it would reduce time spent on assessing whether a guarantee is aligned with the organisation’s policies, and would increase certainty of the outcome if a demand for payment was to be presented.

Very limited narrative has been standard practice in letters of credit for years, so what is preventing a similar development for demand guarantees? After all, referencing the Uniform Rules for Demand Guarantees (URDG) reduces the need to elaborate on many things and ensures common ways of working across jurisdictions. The model texts provided in the URDG are very short and, with limited modifications at most, should fit most cases where a guarantee is required.

That said, with guarantees being a versatile instrument, it is to be expected that only utilising standardised fields with no free text will not be practicable. We also recognise that the guarantees must be accessible to a wide range of beneficiaries – from large corporations with dedicated systems to manage their trade transactions, all the way down to the single individual consumer who may be the beneficiary of a guarantee just once in their whole life (e.g. for the good performance of a building contractor).

We also recognise that market practice is not going to change quickly, thus support for long narratives must be retained even when standardised formats are introduced. A good example is the SWIFT standards release of 2021, where structured fields were introduced to the MT 760 demand guarantee message format. Unfortunately, market practice continues to include long texts, but with additional structured fields for easy transfer of data between systems (as long as the narrative and structured field contents are aligned).

With the SWIFT message types being misused as such, the issue of simpler guarantee texts and structured data is not mainly a technical one, but something guarantee applicants and beneficiaries need to solve together. After all, standardising the content should work to reduce cost at both sides of the trade transaction, as well as for the guarantor.

Standardised Trust community suggestions for bank guarantee text simplification and standardisation

Reference URDG 758, and use limited free text to reduce ambiguity
Even human-readable text can be formatted in a structured manner instead of long paragraphs (such as a table of parties and guarantee details like amount and expiry date, instead of describing them in narrative text)
For system-to-system transfer of data, rely on structured data formats to exchange information and trust the receiving system to generate the human-readable text (instead of writing long narratives)
When generating human-readable files, embed the structured data in an attachment to allow for data ingestion into systems

Standardising the bank guarantee texts