Mark Abrams

Mark heads up the trade finance offering at TFG where his team focuses on bringing in alternative structured finance to international trading companies.

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Contents

Understanding MT 710: advice of a third bank’s or a non-bank’s documentary credit

MT 710 format specifications 

Intended to advise banks about the terms and conditions of a documentary credit issued by another bank or a non-bank entity, the MT 710 allows communication between the issuing and advising banks, directly impacting the execution of international trade agreements.

MT 710 key fields:

The MT 710 has several key fields, including: 

• Fields 21 (Documentary Credit Number) and 31C (Date of Issue): These fields identify the credit and mark its issuance date, which is needed for tracking and compliance.
• Field 23 (Reference to Pre-Advice): This field should be mentioned to underline the importance of pre-advisory communication in the MT 710 message.
• Fields 27 (Sequence of Total) and 20 (Sender’s Reference): This field provides sequencing and a unique identifier for the documentary credit to ensure traceability.
• Fields 32B (Currency Code, Amount) and 49 (Confirmation Instructions): These fields specify the financial aspects and confirmation requirements for risk management and transaction validity.
• Fields 40E (Applicable Rules) and 31D (Date and Place of Expiry: These fields detail the governing rules and the credit’s expiry details, which are vital for legal and operational clarity.
• Fields 50 (Applicant) and 59 (Beneficiary): These fields identify the parties initiating and benefiting from the credit and are central to the transaction’s execution.
• Field 78D (Instructions from Intermediary Bank): This newly mentioned field provides specific instructions from intermediary banks involved in the transaction.

Importance of MT 710

The MT 710 is pivotal for international trade finance as it:

• Facilitates secure communication: The MT 710 provides a standardised, secure method for banks to communicate the terms and conditions of a documentary credit issued by another bank or non-bank entity. This secure communication channel minimises the risk of fraud and misunderstanding in international trade transactions.
• Enhances operational efficiency: By clearly advising on the details of documentary credits, the MT 710 streamlines international trade, enabling faster, more efficient transaction execution. This efficiency is particularly important in a global trade environment where timing and accuracy are important.
• Supports compliance and risk management: The standardised format of the MT 710 helps ensure that all parties know and can comply with the terms and conditions of the documentary credit. This compliance helps manage the risks associated with international trade, such as non-performance by a counterparty or non-compliance with international trade regulations.
• Enables trust and reliability: For beneficiaries, the MT 710 assures that a documentary credit, backed by a bank or a non-bank entity, is in place to secure their transaction. This assurance builds trust between trading partners who may not have a direct relationship or operate across legal jurisdictions.
• Promotes international trade growth: The MT 710 contributes to international trade growth by facilitating smoother and more reliable trade transactions. It allows businesses to expand their operations into new markets confidently, knowing that there is a standardised mechanism for managing the financial aspects of their trade agreements.

Who uses MT 710 and why?

Users

Financial institutions and non-bank entities issuing documentary credits use the MT 710 to communicate these credits’ specifics to banks advising the beneficiaries. This broad user base includes international traders, banks, and corporates engaged in cross-border transactions, requiring precise and reliable documentary credit advisories.

Purpose

The MT 710 is crucial for ensuring that beneficiaries are accurately informed about the documentary credits in their favour. 

It formalises the notification process, facilitating trust and adherence to international trade agreements. By providing a standardised method for advising credits, the MT 710 supports the execution and fulfilment of contractual obligations in international trade, enhancing transactional efficiency and reliability.

Potential issues and advancements

Challenges

• Complexity and expertise: The intricate nature of documentary credits and the detailed requirements of the MT 710 message require specialised knowledge, making it complex to manage.
• Interoperability concerns: Differences in technology and standards across banks can challenge the seamless processing of MT 710 messages.

Advancements

• Digitalisation efforts: The move towards digital trade finance platforms is streamlining the advisory process, reducing potential errors, and increasing operational efficiency.
• Blockchain and smart contracts. These can automate advisory processes, ensure transaction security, and enhance transparency in international trade finance.

The MT 710 message type is fundamental to trade finance. It enables clear and efficient communication of documentary credits among international trade participants. Amidst evolving global trade dynamics, the MT 710, supplemented by ongoing technological innovations, remains central to facilitating robust and transparent trade financing operations.

The MT 710 plays a critical role in international trade finance by providing a secure, efficient, and reliable means of advising documentary credits. Its importance extends beyond mere transactional communication; it underpins the trust, compliance, and risk management framework that global trade relies upon.