Bank Guarantee / Letter of Credit

Product ID	PRD-015
Launch tier	3
Jurisdiction	NZ + AU
Status	Planned
Regulations	AML/CFT Act 2009 · AML/CTF Act 2006 · Privacy Act 2020 · Privacy Act 1988

Bank guarantees and letters of credit are conditional payment instruments under which the bank undertakes to pay a beneficiary if the applicant fails to meet a defined obligation or compliant documents are presented. These instruments are used primarily in trade finance and commercial contracts to reduce counterparty risk. Letters of credit follow documentary credit rules (UCP 600); demand guarantees follow URDG 758.

Key terms

Term	Value
Instrument types	Documentary letter of credit (UCP 600), demand guarantee (URDG 758), standby letter of credit (ISP98)
Currency	NZD, AUD, or major trade currency (via MOD-025)
Face amount	Per approved facility limit
Expiry	Per instrument terms (typically 1–3 years)
Facility fee	Per fee schedule (charged on face amount for commitment period)
Presentation assessment	Automated document compliance check (MOD-020) before payment authorised
Amendment	Requires bank and beneficiary consent; logged immutably
Settlement	Same business day on compliant presentation
Governing rules	UCP 600 / URDG 758 / ISP98 as applicable

System capabilities

Document compliance evaluation is automated and fully auditable — MOD-020 records every presentation and compliance determination. Cross-currency settlement uses a rate-lock at the time of settlement instruction (MOD-025) with no manual FX arrangement needed. All presentations, compliance determinations, and amendments are logged immutably (MOD-022). AML screening is applied on all cross-border instruments at issuance and on each amendment.

Eligibility

The applicant must be a legal entity with an existing or concurrent credit relationship with the bank. Credit assessment per CRE-001 is required before a facility limit is set. MOD-027 and MOD-028 assess the obligor. Facility limit is set by MOD-105 incorporating existing contingent and direct credit exposure. KYC must be current for all beneficial owners per AML-003. The product is not available to natural persons acting in a personal capacity.

Account / facility opening

1. Customer submits a facility application. The relationship manager initiates the credit assessment workflow.
2. MOD-027 and MOD-028 evaluate the obligor's capacity to support the contingent exposure.
3. On credit approval, the facility deed is executed. MOD-049 captures consent; MOD-050 delivers pre-contractual disclosures.
4. MOD-007 activates the facility. Individual instruments are issued against the approved limit as required.
5. Each instrument issuance is a separate transaction referencing the facility and subject to remaining available limit.

Fees

Fee type	Amount
Facility establishment fee	Per fee schedule
Annual facility fee	Per fee schedule
Per-instrument issuance fee	Per fee schedule
Amendment fee	Per fee schedule
SWIFT / messaging fee (cross-border instruments)	Per fee schedule
Early facility cancellation fee	Per fee schedule

Fees are applied by MOD-110 at the relevant trigger event.

Interest / charges

There is no interest accrual on an undrawn facility or on outstanding instruments while no demand has been paid. If a compliant presentation is paid and the bank has a right of recourse to the applicant, the resulting on-balance-sheet receivable accrues interest at the rate specified in the facility deed from the date of payment.

Statements

MOD-113 generates a monthly facility statement covering all issuances, presentations, compliance determinations, amendments, and fee charges in the period. Statements are delivered to the customer's in-app document vault and retained for seven years.

Closing / exit terms

A facility may be reduced or cancelled if there are no outstanding instruments with unexpired commitment periods. Customer-initiated cancellation: instruments with unexpired expiry dates must be returned by the beneficiary or expire before the facility can be fully closed. Bank-initiated cancellation: the bank may cancel an undrawn facility with notice per the facility deed, or immediately if required by law or AML/CFT obligations. Outstanding instruments remain obligations of the bank until their stated expiry.

Regulatory

New Zealand: AML/CFT Act 2009 — customer identification and CDD for all beneficial owners; ongoing monitoring; cross-border instrument screening per AML-008. Privacy Act 2020 per PRI-001. Banking (Prudential Supervision) Act 1989 — capital adequacy treatment per RBNZ credit conversion factor rules.

Australia: AML/CTF Act 2006 — customer identification, CDD, and transaction monitoring; cross-border instrument screening per AML-008. Privacy Act 1988 per PRI-001. Banking Act 1959 / APRA Prudential Standards — capital adequacy per APS 112 credit conversion factors for contingent exposures.

Instruments subject to ICC rules: UCP 600 governs documentary letters of credit; URDG 758 governs demand guarantees; ISP98 governs standby letters of credit where specified in the instrument.

Governing policies

• PAY-002 — Settlement Risk Policy
• CRE-001 — Credit Risk Management Policy
• CRE-005 — Concentration Risk Policy
• CON-004 — Product Disclosure & Sales Practice Policy
• CON-005 — Fee & Pricing Transparency Policy
• CON-006 — Product suitability and governance
• AML-008 — Cross-Border Transfer Reporting Policy
• PRI-001 — Privacy Policy

Implementation modules

Module	Name	Status
MOD-001	Double-entry posting engine	Deployed
MOD-002	Immutable transaction log	Deployed
MOD-007	Account state machine	Deployed
MOD-020	Pre-payment validation suite	Deployed
MOD-022	Payment audit trail	Deployed
MOD-025	FX rate lock & conversion	Deployed
MOD-027	Affordability calculator	Deployed
MOD-028	Credit score & risk rating	Deployed
MOD-044	JWT role-based access control	Deployed
MOD-049	Open banking consent management	Deployed
MOD-050	Disclosure enforcement module	Deployed
MOD-105	Product eligibility engine	Not started
MOD-110	Fee engine	Deployed
MOD-113	Statement generation	Not started

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Compiled 2026-05-22 from source/entities/products/PRD-015.yaml