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Incredibly, it is already over 3 months
since the ICC Banking Commission voted for the adoption
of the final draft of the UCP 600. In another 5 months,
the first UCP 600 transactions will have been issued,
advised, confirmed and, maybe, even amended or drawn
under. But have you planned for the implementation as an
organisation and have you considered all the
implications?
Three months of intensive ICC
seminars held around the world including China, Hong
Kong, Thailand, Pakistan, UAE, UK, France (2 ICC HQ
events) and Netherlands have demonstrated various
approaches that have been, or are being, taken by banks.
For some, the decisions that need to be made as
to how to structure their letter of credit operation for
July 1 and beyond have been taken out of their control
by the relatively small number of staff in that area
i.e., the same staff must adapt to handling transactions
subject to both UCP 500 and UCP 600.
Others,
with larger operations, have the luxury of being able to
'split' their operation into two streams – one that will
facilitate amendments and drawings for UCP 500
transactions and one that will commence with the new
issuance, advising and confirmation of UCP 600 items and
develop into a full offering in the weeks and months
that follow July 1st.
In respect of the latter,
a number of banks, especially those that operate from a
number of processing offices around the world, have
actually put in place a project manager to ensure that
all aspects of the implementation are covered and
managed from a single, consistent, source. For this type
of bank, this approach certainly makes sense in order to
avoid duplication of effort and the risk of issues not
being covered.
Whichever choice is made, there
are some pertinent issues that need to be addressed,
including:
updating of legal agreements between the
bank and its client for the issuance of the letter of
credit (i.e. counter indemnity or reimbursement
agreement);
any necessary
revision of letter of credit application forms
(including those offered within an electronic delivery
system);
revision of the wording for letter of credit advices to
reflect the change to, and application of, UCP 600;
updating of general agreements covering
financing under trade instruments, which would include
financing arrangements under letters of credit (e.g.,
establishing the basis for any financing and the
conditions under which recourse may or may not apply);
updating of any
letter of credit literature that is made available to
clients;
ordering of
UCP 600 publications including peripherals such as the
commentary to UCP 600 and the updated ISBP for staff and
clients (the latter publications expected to be
available May/June 2007);
organising specific
client events in order to explain the changes between
UCP 500 and 600; and, probably most important,
when and how to train
the staff within the letter of credit processing
unit.
The last bullet point is one that should
neither be overlooked nor underestimated. Timing of the
training is critical, will vary between organisations as
to the degree of urgency and needs to be assessed on a
"who", "when" and "how" philosophy.
To explain
this in more detail it is best to use an example.
Bank A has a letter of credit
processing team of 100 people. For their processing they
are currently split by import and export transactions.
Within these two streams there are teams that cover the
issuance/amendments and settlement under import LCs and
advising/confirmation/amendments and settlement under
export LCs. The dilemma for Bank A is when do I
train the staff? Bank A has the budget for
training, but cannot afford to send everyone to an
external seminar.
Clearly, with the structure
that is in place, it would not be appropriate to fully
train all 100 of its staff in anticipation of July 1.
Based on the structure, it can be seen that an ideal
proposition for timing of the training would be:
Pre July 1st
Import team – all those
involved with the issuance and amendment process plus
maybe one or two of the document checkers.
Export team – all those involved with the
advising, confirmation, amendment process plus one or
two of the document checkers.
Post July
1st
The remaining document checkers within the
import and export team would be trained and transitioned
into the UCP 600 stream of work, from July 1 onwards, as
the UCP 500 items decline. Given that the average letter
of credit has an expiry of between 3-6 months, the
expectation would be that the vast majority of the UCP
500 transactions would be utilised or expire partially
or fully unutilised by the end of 2007.
[Note: It should be remembered that all
letters of credit issued pre-July 1st will be subject to
UCP 500 and will remain so unless amended and such
amendment is consented to by all parties according to
UCP 600 sub-article 10 (a). The general advice is to
leave a UCP 500 letter of credit as being subject to
those rules until it is utilised or expires]
For those individuals identified in the "pre
July 1st" group, the question is now one of timing,
where and how? Seminars are an effective way of gaining
an insight into the background information that led to
the changes, but Bank A should be sure that the
speaker is qualified to give the answers that will be
sought (refer to the comments made in the December
newsletter). But, as stated above, it is not possible to
send everyone to a seminar. Therefore, is it the
in-house trainer that attends, learns the fundamentals
and then trains the staff or, does the bank bring in an
external resource to assist. This decision can only be
made by Bank A.
On-line training, such
as that provided by Coastline Solutions – in the
"UpSkill 600" module – gives an ideal solution for
Bank A enabling their staff to train at their
own pace and time to suit their schedule. The module
encompasses a complete review of all 39 articles of UCP
600, analysis of key issues within the revision and an
end of module assessment to measure the level of
competency of the individual. Completing the module
provides the individual with 8 PDU’s towards CDCS
re-certification.
This covers the actual
processing team but Bank A has more than just
these staff involved in letter of credit operations –
Relationship Managers, Trade Sales Managers, internal
Legal Advisers and Customer Service staff all of whom
need to have some idea of the issues under UCP 600 so
that they may effectively communicate with clients.
Ideally, some or all of these should have gone through a
programme or seminar by now but certainly by the end of
February when clients will want to start knowing what
they should look out for, what they should change and,
more importantly, what do the changes in the rules mean
to them. These staff will certainly need a broad
overview of the rules as opposed to a full review.
With regard to the legal agreements and other
documentation, Bank A needs to consider:
what actually needs to change? This may
involve discussions/input from external legal firms that
the bank utilises;
what deadline should be
imposed for the completion so that the agreements and
documents may be sent to customers for review and
signing well in advance of July 1st; and
how
to manage the transition over the weekend of June 29 –
July 1st (dependent upon where you are in the world).
[To facilitate a smooth handover and
'business as usual' with regard to transactions subject
to UCP 500, some banks have stated that they are
contemplating invoking a 'cut-off' date or time. For
example, close of June 28 for transactions to be issued
subject to UCP 500. This cut-off time, allowing
sufficient time to process all outstanding items and to
commence with UCP 600 items with effect from July
1st.]
However you choose to act, the
decisions need to be made soon and communicated within
the
bank. Finally, the plan needs to be well written and monitored
for the deliverables.
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