Coastline newsletter / 2012 edition

ISSUE 42 Jan2012

International Standard Banking Practice (ISBP) – its aims, its link with the UCP and its scope going forward

By Gary Collyer

Aims

The aims of the ISBP were outlined in the foreword to its original publication (Publication No. 645) namely "The ISBP, as it is more commonly called, is a practical complement to UCP 500, ICC’s universally used rules on documentary credits. The ISBP does not amend the UCP. It explains, in explicit detail, how the rules are to be applied on a day-to-day basis. As such, it fills a needed gap between the general principles announced in the rules and the daily work of the documentary credit practitioner."

The foreword to ISBP Publication No. 681 added "Now that UCP 500 has been replaced by UCP 600, it has become necessary to update the ISBP to bring it in line with the new rules." and "In addition to giving guidance to the practitioner, the ISBP was originally created to help reduce the large percentage of documents refused for discrepancies on first presentation. Anecdotal evidence suggests that this objective has been partially attained. Though refusals remain a serious problem with letters of credit, their numbers appear to be declining, in part because of the effectiveness of the checklist contained in the ISBP."

The fallout from the financial crisis of 2008/2009 has demonstrated the need for consistent practices to be in place and, therefore, the growing need for a publication such as the ISBP. What is now needed is for all banks to embrace its contents and not take individual or alternative positions. The content of the ISBP publication is based on positive feedback from ICC national committees. Both Publications, 645 and 681, were implemented following a unanimous vote by ICC national committees in favour of adoption. It therefore follows that their contents should be globally applied.

Questions are still asked of the ICC as to whether a credit should be issued subject to UCP and ISBP. The answer is clearly no. The rules are encompassed in the UCP and the ISBP helps in explaining how to apply those rules not only in a practical way but also in a way that should lead to a common standard of examination by different banks in the transaction. The definition of 'Complying presentation', in UCP 600 article 2, states "means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice." The reference to 'international standard banking practice' would certainly include the principles and content of ISBP but would also include the many 'international banking practices' that exist today but have not been documented. ISBP Publication No. 681 documents some 180 practices (if one was to ignore the 5 preliminary considerations at the front of the publication), but there must be many more. It will also include the opinions that are regularly approved by the ICC Banking Commission.


Link with UCP

Creating a link with the content of the UCP has been a problem since the implementation of ISBP Publication No. 645 in 2003. This has become necessary owing to some banks declaring a position that their credit is subject to the UCP and not ISBP, thereby ignoring the content of the ISBP; and some that they will apply ISBP when it suits and when it does not, they will not. These positions, and other similar ones, appear to have come about due to the lack of any cross-reference between the UCP and ISBP publications.

In the introduction to UCP 600 and ISBP Publication No. 681 attempts were made to overcome this. The introduction to UCP 600 includes "During the revision process, notice was taken of the considerable work that had been completed in creating the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP), ICC Publication No. 645." and "It is the expectation of the Drafting Group and the Banking Commission that the application of the principles contained in the ISBP, including subsequent revisions thereof, will continue during the time UCP 600 is in force."

The introduction to ISBP Publication No. 681 also states "The international standard banking practices documented in this publication are consistent with UCP 600 and the Opinions and Decisions of the ICC Banking Commission. This documents does not amend UCP 600. This publication and the UCP should be read in their entirety and not in isolation." and "The incorporation of this publication into the terms of a documentary credit should be discouraged, as UCP 600 incorporates international standard banking practice, which includes the practices described in this publication."

When the new ISBP Publication is implemented I am sure the same issues will surface, but the final outcome can only be that the publication will represent a reflection of international standard banking practice, and that those practices identify the correct application under UCP 600.

Scope of ISBP going forward

The revision of 'International Standard Banking Practice for the examination of documents under documentary credits', ICC Publication No. 681, is well under way. The latest draft text (Draft 3) has been distributed to ICC national committees and members of the ICC Banking Commission for comment by 13 March. Further drafts will follow during the course of 2012.

This revision, the first complete review since the adoption of ICC Publication No. 645 in October 2002 and its implementation in 2003, is intended to go beyond documenting practices in relation to the examination of documents, by also highlighting the practices that exist in the various aspects of handling of documentary credits. I say intended because an expanded version of the publication was the wish of the majority of national committees, but there has been a distinct lack of input from national committees as to what exactly should be covered in this additional scope.

To recap, when ICC national committees first approved the revision process for ISBP Publication 681, there were three options on the table:

1 To update the present text, in particular the general principles section; or

2 To complete (1) AND incorporate additional documents reflecting the full range of documents that are seen in most documentary credits; or

3 To complete (2) AND create an additional section or sections that would cover various aspects of handling documentary credits.

ICC national committees, by majority, voted for option 3 and were invited to provide their feedback for the items that should be covered in the expanded version. Unfortunately, except for comments from a very few national committees, the response has been quite poor. The upshot of this is that the revision may have to revert to option 1 or 2 and this will be determined at the ICC Banking Commission meeting in Doha on 27 & 28 March 2012.

In addition to a Drafting Group, there is also a Consulting Group made up of over 20 trade specialists coming from all parts of the world. Having a wide representation allows for practices to be actively debated to determine their applicability, the accuracy of the practice and any new practices that need to be documented.

Draft 3 represents the first complete revision of the existing text. Previous drafts focused on specific aspects of ICC Publication 681. The Drafting Group is currently working on the texts for the additional documents that can be added to the publication and an updated version of the ICC Decision on Original Documents. This decision appeared in Publication 681 as an appendix. The intention for the new revision, for which no publication number has currently been assigned, is that the whole concept of the determination of an original document will form a new section in the ISBP.

Draft 3 outlines some additional practices including:

  • Examination of copy transport documents;
  • The effect of a presentation period where copy transport documents are required;
  • The effect of a presentation period where a document other than a transport document is to be presented i.e., a FCR, Delivery Note, etc;
  • Definitions of 'shipping company’ and ‘documents acceptable as presented';
  • Drafts only to be examined to the extent covered by ISBP;
  • Endorsement of drafts, only if required by the credit;
  • Impact of expanded invoice descriptions that may change the nature of the goods i.e., credit states 2000 suede jackets and the invoice shows the same description but also states 2000 imitation suede jackets;
  • On board notation requirements for transport documents (as specified in ICC recommendation paper).

The Drafting Group is meeting for 3 days in Doha this month (either side of the ICC Banking Commission meeting). The goal of this meeting is to review all the comments received from ICC national committees to Draft 3 and start the process of creating Draft 4 of the publication. Draft 4 will also include the new documents proposed for inclusion. It is hoped that Draft 4 will be released by the beginning of May, for comment by ICC national committees by the end of June 2012.

The burning question is when will this revision conclude?
I am sure that I speak on behalf of the Drafting Group when I say that we hope to conclude our work by the end of 2012, but this is dependent on what will or will not form part of the publication.

Unlike the drafting of a set of rules, documenting practice can become an everlasting task. But, there will need to come a day when a decision will be made that 'enough is enough' and the drafting will stop. Above all else, it must be remembered that by 2013 UCP 600 will have been in existence for 6 years. The new ISBP publication needs to be available sooner rather than later.

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