Indemnity
An obligation of one party to reimburse another party for losses which have occurred or which may occur.
Example
Customer A makes a payment to Company B.
In the UK, banks may have a liability to the payer for the value of any funds which are ‘incorrectly diverted’ to a different bank account than that of the intended beneficiary (Company B in this example).
This potential liability of the bank may arise under a multilateral netting system in a group of companies, in relation to third party receipts into the group's netting system.
This is because the funds might not go directly into Company B's bank account, but rather into another bank account in the group's multilateral netting system.
In the UK, banks would require an indemnity for any liability they may have for the value of any funds which may have been ‘incorrectly diverted’ in this way.
