Article


by James Wills

During its 24-25 October 2006 meeting, the ICC Commission on Banking Technique and Practice approved the new UCP 600. These rules will take effect on 1 July 2007. With the purpose of remaining aligned with the new UCP 600 from this date onward, the SWIFT UCP 600 Guidelines provide guidance to banks on how to use today's category 7 standards in compliance with UCP 600.

Traditionally, SWIFT groups all its MT standards changes in one annual standards release, usually in October or November. In 2007, this will be on 27 October. In other words, the 1 July 2007 effective date of the UCP 600 does not coincide with the implementation date of SWIFT's Standards Release 2007.

This means that the only way to let ICC and SWIFT "live" dates coincide and to publish how the UCP 600 affects category 7 standards was by issuing SWIFT UCP 600 Guidelines that financial institutions can start using as soon as the UCP 600 rules go "live". All guidelines are based on the use of narrative text in existing fields. This should ensure a seamless transition to the new rules.

Three phases

SWIFT will implement the UCP 600 related changes in three phases:

- Phase I - During this phase, banks that want to issue their credits subject to UCP 600 via SWIFT as of 1 July 2007 will have the opportunity to do so using today's message formats and UCP 600 guidelines. These guidelines will broadly reflect the content of the Standards Release 2007. However, as these guidelines will at that point not yet be part of the SWIFT User Handbook 2007, the UCP 600 guidelines will be extensively communicated.

- Phase II - Once SWIFT's Standards Release 2007 becomes effective (27 October 2007), the guidelines from Phase I will be "rolled into" the Standards Release 2007 and be published in the SWIFT User Handbook 2007. Prior to that, they will already be part of the Standards Release Guide 2007.

- Phase III - Any structural changes (with significant implementation impact) have been postponed for implementation as part of Standards Release 2008. Any such changes will be discussed by the Trade Finance Maintenance Working Group (TFMWG) and, if approved, be published in the Standards Release Guide and User Handbook 2008.

Date and place for presentation and expiry dates

Background and justification

UCP 600 article 6, Availability, Expiry Date and Place for Presentation, subarticle d.i says: "A credit must state an expiry date for presentation. An expiry date stated for honour or negotiation will be deemed to be an expiry date for presentation."

UCP 600 article 6, Availability, Expiry Date and Place for Presentation, subarticle d.ii says: "The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit available with any bank is that of any bank. A place for presentation other than that of the issuing bank is in addition to the place of the issuing bank."

In order to better align fields 31D, 41a, 31D/E and 72 with UCP 600, the TFMWG proposed that the following textual clarification in the SWIFT User Handbook was necessary as part of Standards Release 2007:

- Change the definition of field 31D. For credits that are only available with the issuing bank, rather than changing the format of field 31D and impacting banks' applications, the TFMWG was of the opinion that today's practice of repeating the place of the issuing bank in the 2nd subfield "place" of field 31D can just be continued.

- Change the definition of field 41a to mention availability and place of presentation.

Bank-to-bank reimbursements

Background and justification

UCP 600 article 13, Bank-to-Bank Reimbursement Arrangements, sub-article b.i says (amongst other things): "If a credit does not state that reimbursement is subject to the ICC rules for bank-tobank reimbursements [...], the reimbursement authorization should not be subject to an expiry date." URR 525 article 7, Expiry of a Reimbursement Authorization, says: "Except to the extent expressly agreed to by the Reimbursing Bank, the Reimbursement Authorization must not have an expiry date or latest date for presentation of a claim except as indicated in Article 9 Reimbursement Undertakings1. Reimbursing Banks will assume no responsibility for the expiry date of Credits and if such date is provided in the Reimbursement Authorization it will be disregarded."

Notwithstanding the above, it should be kept in mind that SWIFT standards should also cater for credits that are issued not subject to UCP and/or reimbursement authorizations that are issued not subject to URR. To clarify the SWIFT User Handbook, the TFMWG proposed the following textual changes as part of Standards Release 2007:

- Change the usage rules of field 31D and 31E to avoid confusion between the latest date for presentation under the documentary credit and any other expiry date (e.g., a latest date for presentation of a reimbursement claim or an expiry date for the reimbursement authorization) that may be specified in the authorization to reimburse or an amendment to an authorization to reimburse.

- Add usage rules in field 72 in case the authorization to reimburse or an amendment to an authorization to reimburse does include such other expiry date (e.g., credits issued not subject to UCP 600 and/or reimbursement authorizations issued not subject to URR 525). This solution was elected in order to avoid having to change the format of fields 31D and 31E or to have to add new fields.

Evaluation of impact

- Documents: Standards Release Guide (SRG) 2007 and User Handbook (UHB) 2007

- Impacted fields and messages:

- Field 31D: MT 700, 705, 710, 720 (change field definition) and 740 (change usage rules)

- Field 31E: MT 747 (change usage rules)

- Field 41a: MT 700, 705, 710 and 720 (change field definition)

- Field 72: MT 740 and 747 (change usage rules).

Disposal of documents in a notice of refusal

Background and justification

UCP 600 article 16, Discrepant Documents, Waiver and Notice, sub-article c. says: "When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter. The notice must state [amongst other things] that:

a) The bank is holding the documents pending further instructions from the presenter; or

b) The issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

c) The bank is returning the documents; or

d) The bank is acting in accordance with instructions previously received from the presenter."

Currently, field 77B, Disposal of Documents in the MT 734 Notice of Refusal, only contains code words covering a) ("HOLD") and c) ("RETURN") above. The two other cases have been newly introduced in the UCP and are therefore not covered by means of code words. Two new code words will be implemented as part of Standards Release 2008.

The TFMWG proposed the following changes as part of Standards Release 2007:

- Amend the scope of MT 734 to indicate in a general manner that the sender has to provide details about the disposal of documents;

- Add that any details regarding the disposal of documents for which the existing two code words cannot be used must be described by means of narrative text. However, because SWIFTNet does not validate the content of field 77B, nothing prevents banks from using the Standards Release 2008 code words for disposal of documents in the MT 734 as of 1 July 2007 (scheduled effective date of the UCP 600). This is why the TFMWG requested SWIFT to already include the future code words in the Standards Release 2007 documentation.

Evaluation of impact

- Documents: Standards Release Guide (SRG) 2007 and User Handbook (UHB) 2007

- Impacted fields and messages:

-- MT 734 (change message scope)

-- Field 77B: MT 734 (change usage rules).

Bank-to-bank reimbursements and standby LCs

Background and justification

UCP 600 article 13, Bank-to-Bank Reimbursement Arrangements, subarticle a. specifies: "If a credit states that reimbursement is to be obtained by a nominated bank ('claiming bank') claiming on another party ('reimbursing bank'), the credit must state if the reimbursement is subject to the ICC rules for bank-to-bank reimbursements in effect on the date of issuance of the credit." There are a few instances where the SWIFT User Handbook includes imprecise definitions related to bank-tobank reimbursements under documentary credits that are subject to the ICC Uniform Rules for Bank-to-Bank Reimbursement (URR).

To correct this, the TFMWG proposed the following changes as part of Standards Release 2007:

- Change the definition of the code words of field 40E Applicable Rules in the MTs 700, 710 and 720;

- Change the definition of field 40F Applicable Rules in the MT 740.

Furthermore, UCP 600 article 1, Application of UCP, states: "The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 ('UCP') are rules that apply to any documentary credit ('credit') (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless expressly modified or excluded by the credit." The current code word definitions in the SWIFT User Handbook refer to "the documentary credit", which may be interpreted to mean that they may not be used in the context of standby letters of credit. To clarify this, TFMWG proposed the following changes as part of Standards Release 2007:

- Amend the definition of the relevant code words of field 40E Applicable Rules in the MTs 700, 710 and 720. Evaluation of impact

- Documents: Standards Release Guide (SRG) 2007 and User Handbook (UHB) 2007

- Impacted fields and messages:

-- Field 40E: MT 700, 710 and 720 (change code word definitions)

-- Field 40F: MT 740 (change field definition)

Timelines

The Standards Release 2007 timeline has the following milestones: February 2007: Final Standards Release Guide published

March 2007: Vendor Testbed enabled

July 2007: User Test and Training enabled

October 2007: Standards Release 2007 live.

The difference in dates for UCP 600 (1 July 2007) and the annual SWIFT Standards Release (November 2006 and October 2007) make the situation a bit confusing in the interim. The November 2006 SWIFT release caters for the UCP 600 using today's existing category 700 messages. A new mandatory field 40E, Applicable Rules, contains codes to indicate adherence to specific rules. Other changes (described above) will be implemented in October 2007. SWIFT has worked with the industry to develop this approach and trusts the community will be able to work with the dates and guidelines.

The SWIFT UCP 600 Guidelines will be reflected in the official Standards Release 2007 documentation (Standards Release Guide and User Handbook) of 27 October 2007.

James Wills is Head of Trade Services Standards Development at SWIFT. His email is James.Wills@swift.com

1.A There are no specifiic SWIFT messages for reimbursement undertakings. Banks may use the MT 799 for this type of transactions.