Release of ICC Banking Commission Technical Advisors Briefing No 5
Earlier this week the ICC banking Commission released Technical Advisors Briefing No 5 titled “Modifications and exclusions under documentary credits subject to UCP 600”
The new TA Briefing focuses on the modifications and exclusions under documentary credits subject to UCP 600.
The context of the new TA Briefing is that many LCs include modifications or exclusions of one or more of the UCP 600 articles. This is permitted by UCP 600 article 1. However, the way modifications / exclusions are indicated in an LC often causes unexpected unnecessary problems.
Some highlights from Technical Advisors Briefing No 5:
* The prime aims of UCP 600 are to provide transparency, provide a rules-based approach, reduce misunderstanding, and detail the examination requirements for a presentation. This should also be upheld in case the LC contains modifications / exclusions.
* Reference is made to ICC Opinions R634 (TA638rev) and R716 (TA704rev) which has responded to issues relating to modifications / exclusions.
* ISBP 745 paragraph A19 has provided interpretations of terms often inserted in an LC with the intention of either modifying or excluding an article the UCP 600.
* It is critical for banks, applicants, and beneficiaries to understand what kind of modification or exclusion is being suggested and why it needs to be made. Is it based upon misunderstanding or lack of knowledge as to how a rule is implemented in practice? Likewise, it is important to understand how the modifications / exclusions will impact the LC as a whole. Will the modification / exclusion create a void that will need to be filled by a new term or condition?
* Banks should keep any exclusions (if at all needed) to a minimum recognizing that it is often not as simple as merely making a statement in the LC that article X or sub-article Y is Select^d or is not to apply. Very often there is a need for a new term or condition to be expressly inserted into the documentary credit to cover the void that the exclusion leaves.
Summary of the new TA Briefing:
Three approaches are recommended to reduce problems in these areas:
* Better understanding of the LC workflows and the principles of UCP 600.
* Wider awareness of ISBP 745
* Distribution of information, i.e., ensuring that ICC Opinions, DOCDEX Decisions and ICC Guidance Papers reach all persons involved in the handling of documentary credits.
In essence, the conclusion of the new TA Briefing is that the key is education.
Please note that the above is my summary of the new TA Briefing (not the full text). Likewise, the TA briefings are educational only.
Take care, and thanks to the ICC for taking care of the LC.
Kind regards
Kim