A practitioner's checklist for a Lugano trader's banking relationship

Before approaching a bank

A trading house in Lugano that seeks trade finance should prepare the relationship as carefully as it prepares a major sale. Banks decide on the basis of a credit file, and a trader that presents a complete and consistent file shortens the process and improves its terms. The file should begin with the ownership and governance of the company. It should name the beneficial owners with their background, describe the board and its residence and set out the trading desk, risk control and back office with the persons responsible. Chapter F.II described the governance duties of the board under Article 716a CO and the expectation of banks that the front office is separated from risk control and operations.¹ The bank will ask for audited accounts for at least two or three years, management accounts for the current year and an explanation of the trading model: which commodities, from which origins, to which destinations, with what volumes and margins.

The second part of the file concerns counterparties and routes. The bank wants to know the main suppliers and buyers, their countries and the documents used. It will also ask how the trader screens its counterparties and vessels and how it hedges price risk. A trader that already applies its own know-your-counterparty procedures, keeps records of its sanctions screening and can show a consistent pricing policy will be perceived as a lower compliance risk. The third part concerns the facility requested. The trader should be realistic about the type of facility it can obtain. A small trader without inventory will usually obtain an uncommitted transactional line, while a borrowing base facility presupposes a larger balance sheet, reliable reporting systems and the acceptance of independent collateral audits.

Negotiating the facility

When negotiating, the trader should pay attention to points that determine its freedom of action in practice. These include the eligibility criteria for buyers, suppliers, countries and commodities, the advance rate and the haircuts, the conditions for delivery against letters of indemnity and the treatment of hedging gains and losses. The reporting obligations, the financial covenants, the events of default and the crossdefault clauses also deserve careful attention. The trader should understand which security it grants: assignments of receivables, pledges of goods and documents, pledges of accounts and of insurance proceeds. Each requires formalities under Swiss law and, where the assets are abroad, under the law of their location. It should check how the security interacts with facilities at other banks, because a trader that grants overlapping security to several lenders may breach its covenants without realizing it.

For guarantees and standby letters of credit issued on its behalf, the trader should insist on clear wording. It should prefer URDG 758 with a supporting statement, a reduction clause linked to deliveries or payments and a fixed expiry date. It should avoid "extend or pay" structures without limits and choose the governing law and jurisdiction deliberately. The Swiss case law described above leaves little room to stop a call once the guarantee is issued, so the negotiation of the text is the trader's main protection.² For documentary credits it receives, the trader should check every term against ISBP 821 on receipt and ask for amendments at once if necessary.

For the practitioner. A Lugano trader preparing or reviewing its banking relationship should be able to answer yes to the following questions. - Are the beneficial owners, board members and key staff documented, and does at least one signatory reside in Switzerland? - Are audited accounts, management accounts and a written description of the trading model, routes and counterparties available? - Does the company screen counterparties, vessels, ports and goods against Swiss, EU, UK and US sanctions lists, and are the results recorded? - Is each documentary credit received checked against UCP 600 and ISBP 821 within a day of receipt? - Are guarantees issued under URDG 758 with a supporting statement, a reduction clause and a fixed expiry? - Are letters of indemnity issued only under a board-approved policy, registered and backed by indemnities from buyers? - Are sale proceeds paid into accounts at the financing bank, with receivables assigned and buyers notified? - Are price risks hedged, and are hedging positions reported to the bank where the facility requires it? - Is the same cargo or receivable never offered as security to more than one lender? - Is the company ready to use electronic bills of lading that comply with Swiss or English law if its banks and counterparties accept them?

Notes

1. See Chapter F.II, section on governance and the duties of the board. ↩
2. See the decisions of the Commercial Court of the Canton of Zurich of 23 March 2020, 20 June 2024 and 18 December 2025 (above). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.