Introduction:
In international trade especially in off-take agreements misunderstandings often arise when Standby Letter of Credit (SBLC) procedures are not clearly defined in the main sale and purchase agreements (SPA). One of the most common issues is the lack of distinction between guarantee-based and document-based SBLCs. When this is not explicitly stated in the contract, it can lead to complications in interbank confirmations and delays in execution. Based on our experience, we have prepared this briefing to help prevent such confusion and provide clarity on the subject, particularly focusing on the differences between URDG 758 and UCP 600 frameworks used in SBLC (MT760) transactions.
❓ What is the difference between ICC Uniform Rules for Demand Guarantees (URDG 758) and UCP 600 in SBLC MT760 transactions?
In SBLC (Standby Letter of Credit) or MT760-based guarantee instruments, the choice between URDG 758 and UCP 600 rules significantly impacts both the legal obligations and the operational procedures. Below is a clear explanation of the key differences between these two regulatory frameworks:
📌 1. Scope and Application
| Feature | URDG 758 | UCP 600 |
|---|---|---|
| Application | Demand Guarantees and Counter-Guarantees | Commercial Letters of Credit |
| Typical Use Case | Construction, performance bonds, bid bonds, government tenders | Commercial transactions involving goods and services |
| Suitability for SBLC | ✅ Ideal for independent guarantee-type SBLCs | ⚠️ Partially suitable; mainly for commercial credit use |
📌 2. Demand and Document Requirements
| Feature | URDG 758 | UCP 600 |
|---|---|---|
| Claim Process | A simple written demand, possibly with a statement of default | Requires a full set of documents (invoice, bill of lading, etc.) |
| Document Review | Straightforward, low risk of interpretation | High documentary scrutiny, possible discrepancies |
| Rejection of Payment | Must include specific reasons and be timely | Similar, but more prone to disputes over document compliance |
📌 3. Independence and Purpose
| Feature | URDG 758 | UCP 600 |
|---|---|---|
| Primary Function | Independent guarantee by the issuing bank | Payment tool for trade between buyer and seller |
| Contractual Independence | Fully independent from the underlying agreement | Independent but closely tied to transactional documents |
📌 4. Risk and Practical Flexibility
| Feature | URDG 758 | UCP 600 |
|---|---|---|
| Risk Management | Lower; fewer documents, more certainty | Higher; risk of discrepancies and delays |
| Bank’s Obligation | Limited to demand and (if needed) statement of default | Dependent on full and exact document compliance |
🎯 Summary Table
| URDG 758 | UCP 600 | |
|---|---|---|
| Better fit for SBLC? | ✅ Yes (guarantee purposes) | ⚠️ Partially (more suited for trade credits) |
| Documentary Burden | Light | Heavy |
| Main Use | Guarantee | Trade Payment |
| Legal Clarity | Higher | Often subject to scrutiny and rejection risk |
📌 Conclusion:
If the SBLC (MT760) is issued as a performance, payment, or bid guarantee, the URDG 758 framework offers a more practical, efficient, and reliable structure.
However, if the transaction is tied to a commercial shipment or invoice, and requires verification of documents, UCP 600 may be appropriate — albeit with higher risk and documentary obligations.
📄 Sample SBLC Texts for Comparison
✅ Example SBLC under URDG 758:
STANDBY LETTER OF CREDIT (SBLC) – As per URDG 758
Issuer Bank: [Bank Name, Address, SWIFT]
Applicant: [Applicant Company Name]
Beneficiary: [Beneficiary Name]
LC Number: [XXXX]
Date of Issue: [Date]
Expiry Date: [Date]
Amount: [Currency & Amount]
Place of Expiry: [Bank Address]
We hereby establish our irrevocable standby letter of credit in your favor for the account of the Applicant up to an aggregate amount of [Amount], available by your drafts at sight drawn on us, accompanied by:
1. A signed statement from the Beneficiary stating:
"The Applicant has failed to perform its obligations under the agreement referenced as [Contract Number], and the amount claimed is due and unpaid."
2. A copy of the unpaid invoice or other evidence of non-performance.
This standby letter of credit is subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 (UCP 600).
This credit expires on [Expiry Date] at our counters.
Signed,
[Authorized Signatory of Issuer Bank]
⚠️ Example SBLC under UCP 600:
STANDBY LETTER OF CREDIT (SBLC) – As per UCP 600
Issuer Bank: [Bank Name, Address, SWIFT]
Applicant: [Applicant Company Name]
Beneficiary: [Beneficiary Name]
SBLC Number: [XXXX]
Date of Issue: [Date]
Expiry Date: [Date]
Amount: [Currency & Amount]
Place of Expiry: [Bank Address]
We, the Issuer Bank, hereby irrevocably undertake to pay the Beneficiary upon first written demand, any amount up to the total of [Amount], provided that the demand:
(a) is made in writing and
(b) states that the Applicant has failed to fulfil its obligations under the underlying agreement [reference contract number], and
(c) is accompanied, if required, by a simple statement of default.
This guarantee is subject to the Uniform Rules for Demand Guarantees (URDG 758), published by the ICC.
All charges outside the Issuer’s country are to be borne by the Beneficiary.
This guarantee shall expire on [Expiry Date] at our counters.
Signed,
[Authorized Signatory of Issuer Bank]
Final Recommendation
| Scenario | Recommended Framework |
|---|---|
| Performance or bid guarantees, minimal documentary burden | ✅ URDG 758 |
| Trade-based transactions with invoices or bills of lading | ✅ UCP 600 (with caution) |
| High-speed payment claim with low rejection risk | ✅ URDG 758 |
Sources & References Used
URDG 758 – Uniform Rules for Demand Guarantees (2010 Revision)
ICC Publication No. 758
https://iccwbo.org
UCP 600 – Uniform Customs and Practice for Documentary Credits (2007 Revision)
ICC Publication No. 600
https://iccwbo.org
SWIFT Category 7 Messages – Guarantee and Standby Letter of Credit Messages
Technical format and content for MT760
https://www.swift.com/standards
Institute of International Banking Law & Practice (IIBLP)
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