Is it time for a revision of UCP 600?

Is it time for a revision of UCP 600?

It is estimated that around 70% of documents presented under documentary letters of credit are rejected upon first presentation to banks due to discrepancies (or apparent discrepancies).

In 2007, the International Chamber of Commerce published the latest revision of its rules – “Uniform Customs and Practice for Documentary Credits, Publication 600”, widely referred to as “UCP 600”. These rules have been adopted by international traders and bankers in more than 160 countries and are intended to interpret and govern the issuance and management of documentary letters of credit.

The UCP 600 rules clearly state and define the obligation of parties to a credit, together with documentary requirements, with the aim of reducing errors and disputes. A complementary ICC publication – “International Standard Banking Practice for the Examination of Documents under UCP 600, Publication 745E” (referred to as ISBP 745) is also available and is intended to assist bank document examiners in the day-to-day interpretation and application of the UCP 600 rules.

All international traders who use letters of credit need to understand the UCP 600 rules in order to significantly improve the chances of “right first-time” presentation of documents with resulting prompt payment from the obligated bank.

10 years have elapsed since the last formal revision of the UCP rules and there have been comprehensive discussions between the ICC Banking Commission Executive Committee and the various National Committees as to whether a new revision – UCP 700 – is now appropriate.

Given that the ISBP 745 came into effect as recently as 2013 and has served to clarify a number of common areas of ambiguity and error, it was felt by the ICC Banking Commission Executive Committee that there was no immediate justification to revise the UCP rules. That said, they have more recently been taking into account a number of counter arguments putting the case forward for such a revision and in December 2016 asked the National Committees to consult with members and revert with their findings.

David Meynell, Senior Technical Advisor and Dan Taylor, Executive Committee member, presented the final results of the consultation at the Banking Commission Annual Meeting in Jakarta on 6th April 2017.

Having received feedback from 20 National Committees, only one supported a full revision of the UCP rules with three requesting reviews of various sub-articles.

The Banking Commission state:

“….. 50% of the problems apply to the presented documents: it is a justifiable assumption that a greater understanding of ISBP 745 would help alleviate these problems and greatly reduce this percentage. As regards to the remaining 50%, that it is difficult to see how a revision of UCP would make much of a material difference as many of these causes are outside the scope of correction by the beneficiary.

The majority of problems are caused by:

  • Poor drafting of the credit;
  • Lack of understanding of documentary credit workflows and the principles of UCP 600;
  • Lack of attention to detail and management of the production, shipment and document collation processes;
  • Excessive and unnecessary data being added to documents;
  • Restricted access to ISBP 745.”

It was thus concluded by the ICC Banking Commission that it is not currently considered appropriate to undertake a revision of UCP 600.

There is however, a definite view that a greater understanding of practices should be the way forward. This is currently under discussion but we understand that the ICC is keen to facilitate:

-       more comprehensive and widely circulated training and guidance

-       a review of pricing and digital availability of UCP rules and practices

-       smart usage of information to achieve greater awareness by practitioners

Strong & Herd offer comprehensive Letter of Credit training courses to help exporting companies manage the process from arranging L/Cs with overseas customers through to preparing documents which comply with terms, conditions and the UCP 600 rules.

Article provided by our Trade Finance Associate Partner:

Mark Hayward of

MJ Hayward Associates Ltd.

 

Website: www.mjhayward.co.uk

 

22nd June 2017.

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