Can a non-bank issue a letter of credit?🤷‍♀️

“XYZ Ltd”(buyer/applicant hereafter) issues the letter of credit to “ABC Ltd” advised through “BEST Bank” in MT 700 format.
What?
It is the issuing bank who issues letter of credit on request of the buyer/applicant. Isn’t it?
Whats going on🙄??? Wait hold on,please clarify what structure we are talking about?💁‍♀
See the picture which shows that no more issuing bank it is corporate/buyer/ applicant himself issuing LC under UCP 600 as per ICC norms.
Is it correct way of issuing LC? Is it acceptable as per ICC norms?

Letter of Credit issued by Corporate (Non-bank issue of LC)

1. What is UCP?
📒The UCP is a set of voluntary rules of practice.
📒The UCP reflects that state of practice, namely a situation where the issuer or other act on a letter of credit is a bank.
📒As a result, although there is no affirmative rule in the UCP prohibiting entities that are not banks from issuing, confirming, paying, negotiating, or advising letters of credit, its vocabulary (“issuing bank”, “confirming bank”, etc.) assumes that these entities are banks.

2. Non-bank issue Letter of credit?
📒That restriction on the issuance of letters of credit is a regulatory matter under local law should be obvious.
📒In some countries, non-banks can issue letters of credit, although there may be limitations where they are used in consumer situations.
📒In other countries, issuance is limited to financial institutions, but it is less clear that only banks constitute financial institutions.
📒As a result, non-banks that are financial institutions, such as insurance companies, can issue letters of credit in some countries.

3. Advantages of issuance of Letter of credit that bank has and corporate don’t?
📒Operational expertise
📒Tradition of independence
📒All countries banks are specially regulated with a view toward protecting those who rely on their undertakings.
📒No risk of neutrality of the issuer (in case of corporate both issuer and applicant are same hence it will impact or may create bias in the future)

4. Does it means non-bank can issue Letter of credit?
📒Ultimately, however, the decision as to whether or not to accept the risks associated with a non-bank issuance rests with the beneficiary
📒Yes they can issue letter of credit

It does not “violate” the UCP for a non-bank to issue a credit subject to the UCP even though such issuance is not contemplated in the rules. The UCP does not specifically provide for bank advice of non-bank issued letters of credit. Such an advice should accurately identify the issuer and indicate the advising bank’s limited role. If the form of advice refers to the “issuer” as “issuing bank” or otherwise gives the impression that it is a bank, it is recommended that the advice affirmatively disclose the non-bank status of the issuer in order to correct any mistaken impression caused by such reference

5. What if the issuer/applicant/non-bank goes bankrupt/insolvent/ liquidation?
📒The consequences of insolvency are a matter for local law, whether the insolvency is that of a bank or non-bank issuer.
📒In either case, however, the beneficiary assumes the risk of the creditworthiness of the issuer unless it is offset by obtaining confirmation or credit insurance.

Thank you.👍✔

Reference :
https://iccwbo.org