Contingent Liability Facility¶
| Product ID | PRD-010 |
| Launch tier | 3 |
| Jurisdiction | NZ + AU |
| Status | Planned |
| Regulations | AML/CFT Act 2009 · AML/CTF Act 2006 · Privacy Act 2020 · Privacy Act 1988 |
A contingent liability facility is an off-balance-sheet instrument under which the bank commits to pay a third party if a defined condition is met and the applicant fails to perform — covering performance bonds and standby letters of credit. The commitment is tracked for capital purposes but does not create a balance sheet liability until a valid demand is made.
Key terms¶
| Term | Value |
|---|---|
| Instrument types | Performance bond, standby letter of credit, bid bond |
| Face amount | Per approved facility limit |
| Commitment period | Per facility deed |
| Facility fee | Per fee schedule (charged on face amount for the commitment period) |
| Demand evaluation | Automated compliance check (MOD-020) before payment is authorised |
| Settlement | Same business day on valid demand and bank approval |
| Cross-currency | Available via MOD-025 |
| Capital treatment | RWA per RBNZ/APRA credit conversion factor for off-balance-sheet commitments |
| Governing rules | URDG 758 (demand guarantees); ISP98 (standby LCs) |
| Statement frequency | Monthly |
System capabilities¶
Demand evaluation is automated and auditable — MOD-020 records every condition check and determination. Capital treatment is computed automatically against RBNZ/APRA credit conversion factors. Cross-currency settlement uses a rate-lock at the time of settlement instruction (MOD-025). All presentations, amendments, and decisions are written to an immutable audit log (MOD-022) that cannot be altered after the fact. Credit limit utilisation updates in real time — a new issuance that would breach the approved limit is blocked at validation before reaching settlement.
Eligibility¶
The applicant must be a legal entity (company, trust, or partnership). Credit assessment per CRE-001 is completed before a facility limit is established; affordability and credit scoring are applied via MOD-027 and MOD-028. Facility limit is set by MOD-105 incorporating existing credit exposure. Identity verification per AML-003 must be current for all beneficial owners before issuance. The product is not available to natural persons acting in a personal capacity.
Account / facility opening¶
- Customer submits a facility application; the relationship manager initiates the credit assessment workflow.
- MOD-027 (affordability) and MOD-028 (credit scoring) evaluate the obligor's capacity to support the contingent exposure.
- On credit approval, the facility deed is executed. MOD-049 captures consent; MOD-050 delivers pre-contractual disclosures.
- MOD-007 transitions the facility to Active. Face amount and condition logic are recorded in the ledger.
- Individual instruments (bonds, guarantees, letters of credit) are issued against the approved limit as required.
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 and posted to the customer's nominated settlement account.
Interest / charges¶
There is no interest accrual on an undrawn contingent liability facility. If a demand is paid and the bank has a right of recourse to the customer, 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, amendments, demands, 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: the customer requests cancellation. Any instruments with unexpired expiry dates must be returned by the beneficiary (or expire) before the facility can be fully closed. MOD-007 transitions the facility to Closed once all instruments are expired or returned.
Bank-initiated cancellation: the bank may cancel an undrawn facility with notice as set out in the facility deed, or immediately if required by law or under 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 for off-balance-sheet exposures per RBNZ standardised approach.
Australia: AML/CTF Act 2006 — customer identification, CDD, and transaction monitoring; cross-border instrument screening per AML-008. Privacy Act 1988 (Australian Privacy Principles) — per PRI-001. Banking Act 1959 / APRA Prudential Standards — capital adequacy; credit conversion factors for off-balance-sheet commitments per APS 112.
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.
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 |
Compiled 2026-05-22 from source/entities/products/PRD-010.yaml