Coastline newsletter / 2008 edition

ISSUE 20 Jul2008

Uniform Rules for Bank-to-Bank Reimbursements

New Publication Number 725 to become effective October 1, 2008

By Gary Collyer

Background to URR

The Uniform Rules for Bank-to-Bank Reimbursements ("URR") were first published by ICC in November 1995 and came into force on July 1, 1996 as ICC Publication No.525. At the time, reimbursement authorizations had begun to be issued in currencies other than what had been the more common currency i.e., US Dollars and an international set of rules were deemed necessary. It should be noted that there had been Bank-to-Bank Reimbursement rules operating in the US for many years and these formed the basis for the establishment of the principles to be considered in drafting URR 525.

From July 1, 1996 issuing banks were faced with the decision as to whether their reimbursement authorizations should be made subject to URR 525 or UCP 500 article 19. To encourage usage of the URR and reduce the possibility of any ambiguity as to the applicable rules, SWIFT modified their handbook to reflect that the issuance of an MT740 (Authorisation to Reimburse) would automatically apply to URR 525, unless otherwise stated. It is true to say that the usage of URR varies from country to country and will, no doubt, continue to do so with the updated version (URR 725) when it comes into effect on October 1, 2008. Today, the majority of credits are issued available by negotiation and the issuing bank provides reimbursement of a complying presentation at sight or on a future due date. This form of issuance negates the need for any Bank-to-Bank reimbursement instructions to appear in a credit. However, there is still scope for more Bank-to-Bank reimbursements to be subject to URR.

Changes made in URR 725

URR 725 should not be seen as a revision of URR 525. It is an updating process that has followed the same manner as the eUCP i.e., to change the style to match that of UCP 600. The changes were approved by the ICC national committees at the ICC Banking Commission in April 2008.

These changes include the removal of capitalization of terms and grammatical changes to match UCP 600 wording. As an example the (s) have been removed throughout the rules and the term honour has also been used to replace the phrase "pays, incurs a deferred payment undertaking, accepts draft(s)."

Article 1 has been changed to allow for express indication of the reimbursement authorization being subject to the rules: "?reimbursement authorization expressly indicates that it is subject to these rules". Due to this change and the wording in UCP 600 sub-article 13 (a), the previous SWIFT stance that a reimbursement authorization will automatically be subject to the version of URR in effect on the date of issue is no longer applicable. As with the MT700, issuers of an MT740 are required to indicate the applicable rules. In this case, URR LATEST VERSION or NOTURR. The use of NOTURR means that the rules stated in UCP 600 article 13 will apply.

Sub-article 6 (a) regarding the operative reimbursement authorization or amendment has been changed to reflect the UCP 600 position i.e., to remove all unnecessary reference to the circumstances where a mail confirmation to a teletransmission is sent. In all cases, the teletransmission is the operative instrument and any mail confirmation will be disregarded.

In sub-articles 6 (d) (iv) and 8 (b) the term "freely negotiable" has been changed to "credit available with any bank" so as to mirror the wording used in UCP 600 sub-article 6 (a). A new sub-article 9 (g) has been added stating "A reimbursing bank is irrevocably bound to honour a reimbursement claim as of the time it issues the reimbursement undertaking." to reflect the same concept as UCP 600 sub-articles 7 (b) (issuing bank undertaking) and 8 (b) (confirming bank undertaking). The remaining sub-articles of article 9 have been renumbered to accommodate this inclusion. The same addition has been made in sub-article 9 (h) (iii), for amendments, to reflect the same concept as UCP 600 sub-article 10 (b).

In sub-article 11 (e) the reference to reserve or indemnity has been removed. Whether or not a claiming bank has paid under indemnity or reserve does not concern a reimbursing bank. The reimbursing bank is not involved in the examination of documents, the determination of compliance nor the manner of honour or negotiation of that presentation.

It may have escaped the notice of a number of practitioners that in URR 525 sub-article 11 (e) the word "honour" was used, even though it did not appear in UCP 500. In URR 725 sub-article 11 (e) that use of the word "honour" has not been changed as it was used in a more generic sense and not in the manner that the term "honour" is defined in UCP 600.

Articles 13 (Foreign Laws and Usages), 14 (Disclaimer on the Transmission of Messages) and 15 (Force Majeure) have been changed to align the wording with UCP 600.

Article 16 on charges has been aligned with the style of UCP 600 to create the rule that a reimbursing bank?s charges are for the account of the issuing bank. This can, of course, be modified by the terms of the reimbursement authorization if such charges are to be for account of the beneficiary.

Applying URR or UCP 600 article 13?

As mentioned at the beginning of this article, the use of URR is quite sporadic and whilst a large percentage of non-usage can be attributed to the type of availability of the majority of credits, there are still a number of banks whose choice of rules remains UCP. I will not attempt to try and dissuade them from whatever views they may have of URR that gave rise to such a policy, but it is worth looking at the gaps that exist between UCP 600 article 13 and URR 725.

URR 725

Article 2 provides a list of definitions of the parties and products associated with reimbursements;

Article 3 creates the separateness of the credit and the reimbursement authorization;

Article 4 a reimbursing bank is not obligated to reimburse unless they have provided a reimbursement undertaking (see article 9);

Article 5 statement of responsibility of the issuing bank for failing to incorporate necessary information into the reimbursement authorization;

Article 6 requirements for the issuance of a reimbursement authorization (although the SWIFT MT740 will prompt completion of most of this information). Issuing bank cannot send a copy of the credit to serve as a reimbursement authorization. Form of reimbursement authorization. Requirements for pre-debit notification or pre-notification of a claim;

Article 7 reimbursing bank may disregard any expiry date that may be stated. Issuing bank must cancel their reimbursement authorization if fully or partially unutilized;

Article 8 position regarding amendments to reimbursement authorizations;

Article 9 issuance of a reimbursement undertaking, requirements for the authorization, the undertaking itself and amendments to a reimbursement undertaking;

Article 10 requirements for the reimbursement claim at sight or with a time draft to be accepted by the reimbursing bank; Article 11 maximum period for processing a reimbursement claim (3 banking days following the day of receipt of the reimbursement claim) and timing for presentation of a claim under a reimbursement due on a future date;

Article 12 effect of a duplicate reimbursement claim;

Article 13 position regarding foreign laws and usage (same position as UCP 600 sub-article 37 (d));

Article 14 position when messages, letters or documents are lost in transit, delayed or mutilated (same position as UCP600 article 35);

Article 15 liability or responsibility in a force majeure situation (same position as UCP 600 article 36);

Article 16 charges are for account of the issuing bank unless otherwise stated.

Clearly, there are aspects of a reimbursement process that are not suitably covered by UCP 600 article 13. This is a deliberate position to encourage usage of rules that are specifically designed for the product. To expand the content of UCP 600 article 13 to cover more areas of reimbursement processes would serve no useful purpose. In fact, at the time of the revision of UCP 500 one of the questions raised was whether or not the URR could be collapsed into the UCP. It was determined very early on in that process that the URR was required to remain a separate set of rules due to the reference that is made in ISP98 rule 8.04 which states "Any instruction or authorization to obtain reimbursement from another bank is subject to the International Chamber of Commerce standard rules for bank-to-bank reimbursements."

The idea of having a set of rules is to establish a sense of certainty to a transaction. URR (525 and the impending 725) seek to achieve this. The content of UCP 600 article 13 covers the bare essentials without tackling the specifics. An issuing bank may find UCP 600 article 13 as more flexible due to its lack of content, but for the sake of establishing international practice serious consideration should be given to adoption of URR 525 now and 725 from October 1, 2008.


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