Coastline newsletter / 2009 edition

ISSUE 29 Nov2009

Is it time to have a full revision of the scope and content of ISBP?

By Gary Collyer


It is hard to believe but it is nearly three years now since UCP 600 and ISBP No. 681 were approved - and two years since they were implemented.

Although only a relatively short time has passed, it is my firm belief that the Banking Commission should commence a full review of the ISBP.

Why? You may ask.

Since its introduction, the ISBP has become an indispensible accompaniment to the UCP rules for all letter of credit practitioners - expanding on issues that were seen as international standard banking practice and solidifying these practices for the international community.

The increased certainty that this publication provides has greatly reduced the scope for banks to raise spurious discrepancies and has decreased inter-bank disputes on operational matters. There is no doubt that documenting standard banking practices has created a greater level of uniformity in operational practices and in the examination of documents globally.

We now have the opportunity to build on this good work, to further standardize LC practice, by not only updating the content of the publication but, more importantly, by extending the scope of the practices and documents covered.

Background

Once UCP 600 had been drafted and approved, it was necessary to align the content of ISBP with the new rules. This focused but limited review entailed deleting practices from the ISBP that had either been incorporated into the rules or changed as a result of the review of the rules.

One example of a deletion due to a change in the rules resulted from the wording of UCP 600 sub-article 23 (a) (iii) that deems a notation of the flight number and date to be the date of shipment, as opposed to the content of paragraph 151 of ISBP Publication No. 645, which said that unless called for in the credit, the details in the notation would be disregarded.

The same applies to paragraph 186 of ISBP 645, which prohibited exclusion clauses from appearing on an insurance document, and the content of UCP 600 sub-article 28 (i) and ISBP No. 681 paragraph 173 that allow exclusions to appear.

The result was that the new ISBP, Publication No. 681, contains only 185 paragraphs compared with 200 in Publication No. 645.

Short-term solution

In effect, ISBP No. 681 was an updated version issued for use on or after 1 July 2007 (the implementation date for UCP 600) in the expectation that it would meet the requirements for document examination for credits subject to the revised UCP.

Due to the short period of time between the approval of the UCP 600 and its implementation, it was not possible to conduct a complete review and revision of the ISBP.

Remember that as of 1 July 2007 there was no practice for document examination under UCP 600. When ISBP publication 645 was approved in 2002, there had been eight years of experience under UCP 500.

In essence this was a necessary short-term solution. However, we are now at the point where given two years experience examining documents under UCP 600 (and it would probably take around 1-2 years to complete a revision of ISBP No. 681) that a full review of the ISBP is possible and would be of real value to the international trade community.

Full review

By a full review I mean not only looking at current practices covered within ICC Publication 681, but also seeing what is missing and whether there is scope to build the ISBP into a practical documentary credit guide that will aid all users of the product.

I can readily think of (and I am sure you can) quite a number of standard banking practices that are not currently documented in the 37 general "examination" principles in ISBP No. 681.

Also, in terms of documents, the current ISBP covers drafts, five transport documents, invoices, insurance documents and certificates of origin. What about all of the other documents that are presented under letters of credit every day? Not only straightforward documents such as packing lists, weight lists, beneficiaries certificates, etc. (these are subject to differing examination practices too!) but also the more detailed documents such as inspection certificates, analysis certificates and health or phytosanitary certificates. Are these documents not subject to dispute? Are these documents not suitable for inclusion in the ISBP?

Admittedly, this would increase the length of the publication - but this is a small price to pay when balanced with the benefits that come from having clear and universal practices. The need for clarity has never been in such sharp focus as it is now, given the current increase in spurious discrepancies brought on by the economic crisis.

There is also a case to extend the scope of the ISBP to cover practices that relate to variants of documentary credits, i.e., transferable credits, revolving and reinstatement credits, instalment credits, assignment of proceeds and even back-to-back credits.

First step

Those of you who attended the ICC Banking Commission meeting in Dubai in March 2009 know that I will be putting forward a proposal to start the revision of ISBP at the forthcoming Banking Commission meeting on 23/24 November in Brussels.

I will be highlighting the opportunity that exists to further standardize international banking practice. With the full authority of the ICC behind it I have no doubt that a revised ISBP would have an even more significant impact than the first two editions and would surely become the most authoritative publication of its kind.

The decision to proceed lies with the membership of the ICC Banking Commission. I am hoping that they have the same vision as I do.

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The course content is written Professor James Byrne of The Institute of International Banking Law & Practice in association with Gary Collyer, Technical Adviser to the ICC Banking Commission.

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