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DCI This is an interview with Gary Collyer and Dan Taylor, two of the key members of the ICC Banking Commission for nearly 20 years - Dan as Vice Chair and Gary as the Commission's Technical Adviser. Both of whom, after years of distinguished service, are stepping down as officers. I will be asking them both to look back over the last two decades and to give their impressions of what the commission has accomplished and how it is likely to develop in the future. First, then, I'll ask both to look back and give their views as to how the Commission has changed.

Collyer When I first became an officer back in 1996, ICC was looking to branch out from being just a Paris-based operation and to spread the word about the work of the Banking Commission to all corners of the world. Our first meeting as officers was held in Shanghai, the first meeting of the Banking Commission outside of Paris. It then became normal to have one meeting in Paris and one in another country per year.

Back then, the meetings lasted only one day. A lot of the discussions, when we were holding meetings in various countries, were taken up with making the people of these countries aware of the activities and projects that the ICC was involved in, as well as concluding the usual Banking Commission agenda that primarily consisted of the approval of the Opinions.

For a number of years after we became officers, there was a view that the Banking Commission was essentially a letter of credit commission, because most of the time the discussions returned to letter of credit issues. Even when we tried introducing guest speakers, we always seemed to get back to letter of credit processes, issues and problems.

As time progressed, we went through a number of Chairs. Dieter Kiefer was the first to try to "break" the letter of credit mold and instill a need for the Commission to have a wider outlook on trade finance. It took us quite a long time, probably too long, to get the Commission to move from being letter of credit-centric towards an environment in which it could speak on a number of subjects or other products.

The movement to a two-day meeting effectively helped that process. When it was held for only one day, the discussions became quite rushed, and many people couldn't stay the entire time. With a two-day meeting, a diverse range of agenda items could be put on the table, and that helped the Commission to focus on a number of new areas, leading, most recently, to the BPO and where the Banking Commission can assist in the open account space. In the coming months, a joint initiative between the ICC and FCI (Factors Chain International) will see a drafting process put in place for ICC rules covering factoring.

These are positive signs. It may have taken us a lot longer than we first envisaged, but we knew it was not going to be an easy process given the nature and background of the people who have historically attended Commission meetings and the limitations of time given to discuss a range of subjects.

But the movement into these other different processes and projects, not just those linked to trade finance products, will continue to have an impact in the banking industry. Historically, the Banking Commission operated only in the banking domain, hardly ever encroaching into the regulatory area. This has changed significantly over the past four to five years. The benefit of this move is that the Banking Commission has become recognized as more than just a rule writing body.

Taylor The evolution from what the Commission was, a European-US focused Commission to what we are now, a global institution, has been a significant evolution. We have broadened the vision of the Commission, broadened it for more industry engagement on many of the things that we are now doing.

When I first started attending Commission meetings 20-30 years ago, it was focused on letters of credit. The widening of the focus over time to standardization, to include various products, with new rules like the introduction of the ISBP, created a more level playing field. And moving to things like the Trade Finance Registry, created as a response to the financial crisis, was the basis for a more complete dialogue with the regulators about advocacy for the industry.

All these things have been huge positive steps in moving the Commission forward.

DCI So, if I understand you both, you are not concerned that the Commission is maybe stretching itself too thin by moving into areas such as forfaiting, factoring and policy issues and moving away from rule making?

Collyer I don't think it is a question of thinning out the expertise. It's more about trying to encourage a more diverse group of people to attend meetings. There are national committees who turn up with 10-30 people. Where the Commission is heading now does not require more letter of credit specialists to attend; it is about encouraging people to attend who can contribute to a discussion on a wide range of subjects that may be included in any agenda.

The Commission will still have its letters of credit experts and the people who clearly enjoy the discussions that arise in the opinion sessions. But what it needs now is for people to come along with the same sense of enthusiasm for the products they handle on a daily basis, e.g., BPO, forfaiting, factoring, etc.

That is where the Commission has changed over the years. There are now people who can talk about different issues. Four or five years ago, if we have raised questions on topics like forfaiting, there would almost be silence in the room.

DCI What about this most recent development of moving to form regional BCs such as the MENA headquarters in Dubai to supplement the work of the Commission in Paris? Does that risk diluting the work of the Commission, or is it a positive development in view of the Commission's growing world-wide membership?

Taylor The Commission has continued its traditional role on rules and standards. The commission is an industry organization, and it goes where the industry and its members want it to go. We moved into these new areas because that is where the industry has moved us.

If the concept of regional banking commissions can be further developed, it could bring the work of the Commission closer to the local markets. The regional commissions would give them a more active role in the Commission's activities.

DCI Regarding UCP 600, in a 2002 interview prior to the revision of UCP 500, Gary, you envisioned that UCP 600 would only be a technical revision, not a line-by-line review of the rules. What changed your mind?

Collyer Once you start a revision process, what ideas or views one may have as an individual are outweighed by the wishes of the many. When we started the revision process for UCP, we did not envision that there would be major issues in relation to the content of UCP 500. It was thought it would be more of a simple review of the text as opposed to a complete restructuring.

The question we asked ourselves, as a drafting group, was: do we need to plug any gaps? There was also the need to see how to bring the ISBP and the UCP closer and create a link between both publications. And once we started looking at the ISBP, we identified a number of practices that should actually have been rules. Conversely, there were aspects of the UCP where practice had overtaken a particular rule.

Once you open up something like the UCP for comment, as opposed to any other set of ICC rules, everyone will leap up from every corner of the world to say what issues should be included. And once you analyze a number of these comments, you identify the things that possibly could have been worded more simply or in a more straightforward manner.

During the revision of UCP 500, we received over 5000 comments. That is not to say they were negative comments in relation to how we drafted the actual rules. The vast majority of the comments were purely educational questions.

The context of the comments we received, certainly those from parts of the world where perhaps the reach of the ICC is not as great, highlighted the need for the wording in UCP to be simplified.

The ICC global reach is really not that global if you consider the member countries located in regions such as Africa, the Middle East or South America. If you look at the representation within these regions, sometimes there is just one person who will handle the role in a country to facilitate the flow of information to the member banks. So, how do you ensure that the information is made available to all the banks in these regions, which predominantly have letters of credit as their main settlement means, and who would benefit greatly from this information? When we look today at the establishment of regional banking commissions, this is where they could have assisted in the past by providing education at a regional level.

When we started to look at the comments and questions that were coming from the banking organizations in these countries, it was clear that there was something missing. This is why we spent more time than we envisaged in looking at the words in the rules, to put them in such a way that people from all regions could better understand and apply them on a daily basis.

DCI I'm looking at past articles in DC Insight. In 1997, you said you had received some 60 queries on UCP 500 in the six months since you took over as the Commission's Technical Adviser. But the pace of queries considerably slowed down after the introduction of UCP 600. To what do you attribute that change in the reduction in the number of queries? Is it because UCP 600 is so well drafted that it eliminated ambiguities in the rules?

Collyer I would like to think so, but I think we should look at where the industry has moved in the last 10-15 years. It has moved on considerably, but maybe not to everyone's liking. Back then, every bank had its own letter of credit operation. Today, the outsourcing of the processing to other banks and banks actively looking to insource from other banks has contributed to the development of a small group of global banks that are effectively monopolizing the market, by volume, in relation to processing transactions. Large banks in a number of countries have centralized their processing into one or two locations to improve standards and the ability to train staff on a more consistent basis.

This trend has contributed significantly, because the days of 20 different branches of a bank in the same country administering a letter of credit with the inherent problems of having to train all those people, keep them up to speed on what is going on internationally, etc., have diminished.

It may just be that standards are getting higher within banks, not only at the document examination stage, but also at the time of issuance where letter of credit terms and conditions are being expressed more clearly.

DCI Let me ask you a general question. In the medium and long term, do you see the letter of credit market stagnating, declining or slowly growing? And in relation to that question, can a young person entering the field of trade finance today hope for a bright future in the field?

Taylor The letter of credit business has been around for many years. I don't see it going away. I think there will always be a need for the third party assurance of payment that it provides. We have seen the shift away to open account, and over time, we will shift towards electronic instruments like the BPO.

What we have seen is that the growth pattern has flattened out. Before the financial crisis, there were big shifts to open account, but many came back to the letter of credit during the crisis. Those kinds of changes will always be there, but they show the value of the assurance of payment that is the L/C.

There is still a need for those entering trade finance on the operations side.

Collyer I agree with Dan on that last point. If I were an 18-year old looking to get into a letter of credit department in Europe or even in North America, I would find it difficult, because that is not where the business is; it is not where the processing is located. A lot of banks have offshored their processing. But if I were from Asia or from the Indian Sub- Continent or the Middle East, then I think I would have a bright future in a letter of credit department, because that's where the letter of credit volume is located and where it is being processed.

I've just come back from Saudi Arabia, and their letter of credit business grew 11% last year. This is not just oil-based letters of credit, but those for machinery, cars, household, consumer goods, etc.

But in some parts of the world, in Europe and in North America, the shift away from letters of credit to open account, etc., will continue, so the opportunities will be less for someone looking for a role in a letter of credit department, that is if they still exist in some of the major banks in the big cities of Europe and North America, because they may have already moved their processing offshore.

DCI The 64 million dollar question always asked about the UCP is whether UCP 600 is likely to be the last one. You two had contrasting views on that. How do you feel now with all of these new things coming along like the BPO?

Collyer Historically, the UCP has been revised every 10-15 years as a matter of course. Whether that was needed every time is open to debate. But now the notion that we have to revise rules because 10 years have past is gone. If rules are working and the business and industry environments to which these rules relate have not changed, and if there have been no significant issues that have appeared in the short or long term in respect of the current wording, I don't see any reason to revise the rules.

In April 2013, we received the approval of ISBP 745. To even contemplate a revision of UCP in the next two to five years, there must be some fundamental issues or problems that exist in those two publications that are at odds with the way the industry is based today and that would warrant a revision taking place. For example, have there been major or material changes in banking, transport or insurance practices? If none of those have really changed, I see no good reason for a revision.

Taylor I would agree. It will get revised if needed. The ICC doesn't revise rules just for the sake of revision. Looking at the queries we receive today, I see no need for a revision.

DCI Let me ask you about what Boris Kozolchyk said in a DCInsight article some time ago. He said that a future UCP, if there is one, should only be a skeletal UCP with general principles and that the ISBP should fill in the gaps by being more frequently updated than it is at present. Is that a workable possibility?

Collyer I've not heard that quote before, but I would agree with it. Part of the revision of UCP 500 was to try to trim down a lot of the excessive text.

There has to be a way that the ISBP is updated on a more regular basis. Rules are written with the intention that they will stand the test of time, are simple and straightforward in their language, and as Boris said, should be skeletal. You put the meat in the ISBP.

The ISBP is not a document that stands still. ISBP 745 was approved in April 2013. Since then, 24 Banking Commission opinions have been approved, a number of which could equally be considered as international standard banking practice. We have to find a way for ISBP to be delivered and made available differently. It needs to keep evolving.

How many people buy the ICC opinions publications? How many people subscribe to DCInsight, to DC-Pro to have access to these opinions? The ISBP is probably the only way they can understand or see the positions that have been expressed in all of those opinions.

I'm not saying that the ISBP should be updated every six months or after every Commission meeting, but maybe on a two-year basis. This means a different delivery model for the ISBP will be required, and ICC Publishing should look at the options available. There is a need to inform the trade finance community on a regular basis of newly approved practices (i.e., from the conclusions of the ICC Opinions) and completing an ISBP publication only every 10 years or so following a UCP revision is not really the way forward.

Taylor We have revised the ISBP, we have UCP 600 that seems to stand the test of time. If you look at the decline in the number of queries - all of these developments have reduced the number of questions that we receive.

DCI Moving on to electronics. The eUCP has been in effect for more than 10 years. Why hasn't it taken off ?

Taylor To a large degree it was ahead of its time. We as bankers saw the business starting to move towards an electronic environment.

I think it was an important effort, and we have learned a lot as an industry through that process. It has provided considerable background and value to the evolution we are seeing today, to open account and to the BPO.

In other words, it established a foundation even though it never took off as we thought it would. We may not have gotten to where we are today had it not happened.

DCI You mentioned the BPO. Why would this new electronic method of payment be accepted more readily than the eUCP was?

Collyer I think the answer lies in the simplicity of how you can bring everyone onto one platform and a clear description in the rules of the messaging flows and responsibilities of each bank for any stage of a transaction. With the BPO, the only choice of platform currently available is the SWIFT TSU. The eUCP did not provide a lot of answers concerning choice of platform, or a description of how a transaction could commence or conclude. It was written at a fairly high level.

The BPO is a different concept altogether. We are talking of the transmission and electronic matching of data as opposed to the sending electronically of a document, but its still being subject to a manual review. With the eUCP, the big issue for banks was whether the corporates were ready for it. Another relevant question was whether the banks themselves were ready for it and who would take the lead - the corporate or the bank - in planning the transition from paper to electronic for one or many transactions.

With a eUCP transaction, instead of having the document in the form of a piece of paper in front of you on a desk, a PDF or a scanned version of that document would be sent electronically. So, the examination process of that document and the time needed to complete that examination would probably be no different than if received by paper.

I don't think that we can look at the eUCP and the BPO in the same light. Today, the BPO is geared towards helping banks offer services around a client's open account business where historically there are no predefined conditions, no predefined documentation other than those that are required in the import or export of particular types of goods involved between a buyer and seller. In the long term, the BPO will be more efficient for the conversion of the paper letter of credit to an electronic equivalent.

Taylor This is an evolutionary process. It requires re-engineering on the part of the bank and on the part of the corporate customers. That is part of what has to happen with the growth and adoption of the BPO. Everyone in the process has to be involved to evolve and move forward.

DCI Do you agree with André Casterman of SWIFT in his prediction that by the end of this decade BPO transactions will outstrip letter of credit transactions?

Collyer I don't think you can make a direct comparison between the two on a volume for volume basis. SWIFT data for the ICC Trade Finance Survey in 2013 (based on 2012 data) shows about 380,000 letters of credit a month (as an average) that are issued as MT 700s. BPOs may be issued on the basis of one per transaction (similar to an L/C), or individual BPOs covering line items on an invoice.

To say that the volume of BPO transactions may turn out to be greater than the volume of letter of credit transactions by the end of the decade may be true. But that does not mean that there will necessarily be a decline in the number of L/Cs; it may just demonstrate that there had been a higher number of invoice-driven transactions through the BPO.

DCI We've been discussing the past, what the Commission has accomplished these last 20 years. What about the future? If you were to look down the road 10 years or so, what changes do you foresee in the structure and focus of the Commission?

Taylor The future of the Commission is to keep going where the members want it to go, wherever that takes and where the business evolves over time. The Commission has a huge role to play in advocacy for the industry simply because it is positioning as a global organization. That is where the future goes - where the banks see the market going and where the corporates and the business develop in the coming years.

Collyer Dan and I have seen a lot of people in the 16-17 years that we've been officers of the Commission and before that as part of the audience. Unfortunately, over those years we have sadly lost a large number of people who were major contributors to the Commission. However, there are still a number of people in the Commission who were there when we started out. If you want to know where the Commission will go in the next 10 years, it will lose potentially a lot of experience in the next 5-10 years when these people retire.

The responsibility will then lie with the banks individually, as well as the ICC national committees, to ensure that the level and degree of experience that will be lost in the coming years will be replaced by people with a wide area of expertise who will be willing to actively contribute to the ongoing work of the Commission. Banks and national committees need to ensure that they bring in as many and as diverse group of people to represent the different products that will form the Commission's future agendas. And these new members have to be encouraged to participate and not to just sit there and listen. It is only through continued dialogue at the meetings that the Commission will stay on the right track in the future.

Gary Collyer's e-mail is gary@collyerconsulting.com

Dan Taylor's e-mail is dan.l.taylor@jpmorgan.com