CIR key terms

An unconditional written order from one party to another to pay a fixed sum on demand or at a set future date. In trade finance it is often drawn by an exporter on an importer or bank and may be discounted before maturity.

A bank's irrevocable written undertaking to pay a beneficiary against presentation of stipulated documents complying with the credit terms. Payment depends on document compliance, not on the underlying goods or contract performance.

The ICC's Uniform Customs and Practice for Documentary Credits, the rulebook incorporated into most commercial letters of credit. It governs issuer obligations, examination standards, presentation periods, and transport and insurance document requirements.

A mismatch between presented documents and the terms of the credit, or an inconsistency among the documents themselves. The issuing bank may refuse them and must give a single notice stating each discrepancy within five banking days.

The applicant's agreement, communicated to the issuing bank, to accept documents despite stated discrepancies. The bank may then honour the presentation, but the waiver does not oblige it to do so and does not cure the discrepancy itself.

A bank undertaking payable only when the beneficiary certifies that the applicant has failed to perform an obligation, typically a payment or contract duty. It functions as a guarantee and is usually subject to ISP98 or UCP 600.

An independent bank undertaking to pay a stated amount on first written demand, often with a statement of default. It is payable without proof of the underlying breach and is governed by the ICC's URDG 758.

An undertaking given by one bank to another instructing it to issue its own guarantee or standby. The instructing bank bears the risk of the applicant and must reimburse the issuing bank on a compliant demand.

A process where a bank handles commercial and transport documents against payment or acceptance by the importer, without issuing its own payment undertaking. The bank acts as agent and bears no credit risk on the buyer.

ICC Publication 522, the rulebook governing documentary and clean collections. It sets out bank duties for receiving, presenting and releasing documents, and confirms banks deal with documents rather than goods.

A bill of exchange bearing a bank's written guarantee of payment, known as an aval, on the face of the instrument. The avalising bank becomes jointly liable with the drawer to pay the holder at maturity.

The outright purchase, usually without recourse to the exporter, of medium-term receivables such as accepted or avalised drafts. The forfaiter discounts the paper and absorbs the importer and bank credit risk.

ICC standard trade terms defining which party arranges carriage, insurance and customs clearance, and where risk transfers. They do not address title, payment or applicable law and must be matched to the transport mode.

A transport document that acts as receipt for goods, evidence of the carriage contract, and document of title. An original set is often required under a letter of credit to control release of the cargo.

A payment arrangement where goods are shipped and delivered before payment falls due, with no bank undertaking supporting the sale. It concentrates risk on the exporter and is typically covered by credit insurance.

A policy protecting a seller against non-payment by buyers due to insolvency or protracted default, and sometimes political events. It supports open account sales and is often required by banks financing receivables.

A programme in which a bank or funder pays a buyer's approved invoices early to suppliers at a discount based on the buyer's credit standing. It shortens supplier cash cycles without adding debt to the buyer.

A buyer-led payables programme where the buyer approves invoices and the bank offers early payment to suppliers at a rate reflecting the buyer's credit risk. The buyer pays the bank at the original due date.

A relationship in which one bank holds accounts and provides payment, clearing and trade services for another bank in a jurisdiction where the latter lacks a presence. It relies on reciprocal due diligence and credit lines.

Mirror terms for the same account viewed from each side. A nostro is our account held with a foreign bank in that bank's currency; the same account is a vostro from the holder bank's perspective.

Use of a respondent bank's correspondent relationship by another institution, often indirectly or without the correspondent's knowledge. It obscures the true originator of payments and is a major money-laundering risk.

A structured financial message exchanged over the SWIFT network, categorised by type such as MT103 for customer payments or MT202 for bank-to-bank transfers. The network transmits instructions but does not itself move funds.

An open standard for financial messaging using structured XML data with richer remittance and party information. It is replacing SWIFT MT formats for cross-border payments under the CBPR+ migration.

A settlement mechanism that links two currency legs so each is released only when the other is also settled. It removes principal risk in foreign exchange settlement and is used by CLS.

A payment system that settles each transfer individually and immediately in central bank money, with finality on processing. It reduces systemic risk but requires intraday liquidity from participants.

The risk that one leg of a foreign exchange transaction settles while the other is not delivered because a counterparty fails, named after a 1974 German bank collapse. It is also called cross-currency settlement risk.

The risk that a counterparty fails to deliver the currency or securities due after the other side has already paid. It is distinct from pre-settlement credit risk and is mitigated by payment versus payment arrangements.

Funds available to a bank during the business day to meet payment obligations before incoming flows arrive. It is managed with central bank credit, collateral and queue management in real-time gross settlement systems.

A Basel III requirement that a bank hold enough high-quality liquid assets to survive a 30-day stress outflow. It constrains short-term wholesale funding and affects the cost of correspondent and FX activity.

The Basel Committee's post-2008 framework raising capital quality, adding leverage and liquidity standards, and introducing countercyclical buffers. National rules implement it with local variations that affect cross-border lending.

The risk that a borrower or counterparty fails to meet a payment obligation when due. In cross-border lending it includes transfer and country risk, where a solvent borrower cannot obtain foreign currency.

The risk that a borrower cannot convert local currency into the currency of repayment or cannot remit it abroad due to exchange controls. It is a country risk distinct from the borrower's own creditworthiness.

The risk that a government or its instrumentalities fail to service external debt, or impose measures preventing private borrowers from doing so. It drives country exposure limits and risk-weighting in cross-border lending.

The natural persons who ultimately own or control a legal entity or the funds in a transaction. Banks must identify them under AML rules and may not rely solely on nominee or corporate structures.

The process of identifying customers, verifying identity, understanding purpose and expected activity, and monitoring the relationship. Enhanced measures apply to higher-risk customers such as politically exposed persons or foreign correspondents.

The automated checking of parties, vessels, addresses and free-text fields against designated lists such as OFAC SDN or EU consolidated lists. Alerts require disposition, and true matches must be blocked or rejected and reported.

The global AML/CFT standards issued by the Financial Action Task Force, covering customer due diligence, suspicious transaction reporting, and correspondent banking. Countries are assessed against them through mutual evaluations.

Splitting transactions into smaller amounts to stay below reporting thresholds or avoid scrutiny. It is a money-laundering typology and is often detected through monitoring scenarios rather than single-transaction checks.

An agreement to buy or sell a currency at a fixed rate on a future date. The rate reflects the spot rate adjusted by the interest rate differential between the two currencies for the period.

The principle that the forward premium or discount between two currencies equals the interest rate differential for the same period. It links money market and FX pricing and underlies forward rate calculation.

An agreement to exchange principal amounts in two currencies and re-exchange them later, with periodic interest payments. It manages long-dated FX and funding risk and differs from a cross-currency interest rate swap.

A situation where assets and liabilities or income and obligations are denominated in different currencies. It creates exposure to exchange rate movements and can trigger losses even when the underlying business is profitable.

Standards governing how banks treat clients and behave in markets, including fair pricing, conflicts of interest, and prohibitions on manipulation. Breaches attract regulatory fines and reputational damage.

Attempting to influence a reference rate such as LIBOR or FX fixes through submissions or trading. It is a market abuse offence and prompted the shift to transaction-based risk-free rates.

The ICC supplement to UCP 600 permitting electronic records to be presented in place of paper documents. It addresses format, authentication and corruption of electronic presentations and requires express incorporation.

The onboarding and ongoing process of establishing a customer's identity, business, ownership and risk profile. It underpins monitoring, sanctions screening and suspicious activity reporting in correspondent and trade relationships.