The Fronting Letter of Credit is a specialized banking instrument commonly used in international trade finance where certain banks may not have direct relationships with particular jurisdictions or counterparties. Under South African law, this document enables one bank to act as a fronting institution for another bank, typically due to regulatory requirements, relationship limitations, or credit risk considerations. The fronting arrangement allows for the facilitation of international trade while complying with both local South African banking regulations and international standards such as UCP 600. This structure is particularly relevant in cases where the principal bank lacks presence in certain markets or when regulatory restrictions prevent direct issuance of Letters of Credit.

1. Letter Header: Bank's letterhead, date, reference number, and addressee details

2. Subject Line: Clear identification as a Fronting Letter of Credit with reference to the underlying transaction

3. Transaction Details: Description of the underlying commercial transaction, including parties involved and basic terms

4. LC Terms: Specific terms of the Letter of Credit including amount, validity period, and documentary requirements

5. Fronting Arrangement: Details of the fronting arrangement between the issuing bank and the bank on whose behalf the LC is being issued

6. Payment Terms: Conditions for payment, including required documentation and timing

7. Risk Allocation: Clear statement of how risks are allocated between the fronting bank and the bank on whose behalf the LC is issued

8. Applicable Rules: Reference to governing rules (e.g., UCP 600) and applicable law

9. Contact Information: Relevant contact details for all parties involved

10. Authorization: Signature block and authorization details from the issuing bank