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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
On 6th June 2017, the ICC Banking Commission provided a press release announcing the launch of a Working Group to anticipate and accompany the digitalisation of trade finance. One core activity was to evaluate existing ICC rules in order to assess e-compatibility and ensure they are ‘e-compliant’, i.e. enabling banks to accept data vs. documents. It was identified that this was required in order to accommodate evolving practices and technologies.
A drafting Group was established, co-chaired by David Meynell and Gary Collyer, with the initial aim of reviewing the e-compatibility of existing ICC rules. The names of the members of the Drafting Group are provided in Appendix 5.
The gap analysis of existing ICC rules revealed the below:
This analysis further identified a number of initial areas that required increased focus, including:
• Means of presentation with regard to the scope of eUCP
• Definition of the term ‘corruption’ when applied to an electronic record
• Definition of a ‘data processing system’
• Clarification of the process of ‘re-presentation’
• Highlight that banks do not deal with the underlying goods or services
• Period of time for examination
• Disclaimers
• Absence of a ‘Force Majeure’ article
Subsequently, pursuant to initial comments from members of the drafting group, it became apparent that a number of ‘knowledge gaps’ existed in respect of existing eUCP wording. These included:
• Minimum standards
• Authentication of Electronic Records
• Notice of Completeness
• Electronic Address
• Period for notice of refusal
• Originality
The eRules have been intentionally developed with version numbers in order that they can be updated regularly without impacting upon other existing ICC rules, thereby reducing the time required to develop any potential identified revision.
The initial drafts of eUCP version 2.0 and eURC version 1.0 were sent to ICC National Committees (NC’s) on 25th September 2017, with a deadline of 27th November 2017 for response. At the request of a number of ICC NC’s, based upon a communications issue, it was decided to extend the deadline to 28th February 2018.
Pursuant to feedback on the original drafts, work commenced on a 2nd draft, which was subsequently distributed to ICC NC’s on 20th March 2018, with a deadline of 25th May 2018 for response. A 3rd draft of the rules was sent out on 20th July 2018, providing a deadline of 28th September 2018 for response. The 4th of the rules was disseminated on 6th November 2018, indicating a deadline of 4th January 2019 for feedback.
At that stage, and following a thorough review of all comments received to date, it was considered to be an appropriate time to draft a final version of the rules. These were consequently sent to ICC NC’s on 31st January 2019, specifying that the deadline for voting would be 22nd March 2019. It is worth commenting that this timeframe was only 16 months after distribution of the original drafts and included an enforced 3-month extension, as mentioned above.
During the course of the first four drafts, almost 2,000 comments were received from ICC NC’s. For the purposes of transparency and clarity, every comment received an individual response. As a valuable reference source, the ‘ICC Guide to the eUCP’ (ICC Publication No. 639) and the work of the authors, Professor James E. Byrne and Dan Taylor, has been gratefully acknowledged.
For the first time in the history of the ICC Banking Commission, a new approach was introduced for the ICC rules voting process, via the Simply Voting platform. This initiative provided an online voting system to be used for the approval of the revised eUCP and new eURC rules.
Each NC was requested to choose one designated representative with the right to cast the vote on its behalf and the platform was opened for voting from 11th until 22nd March 2019. NC’s were invited to vote on the revised eUCP and new eURC separately by choosing ‘YES’ or ‘NO’ to the following options:
• Does your National Committee approve the Uniform Customs and Practice for Documentary Credits (UCP 600) Supplement for Electronic Presentation (eUCP) Version 2.0?
• Does your National Committee approve the Uniform Rules for Collections (URC 522) Supplement for Electronic Presentation (eURC) Version 1.0?
Voting result:
• Votes received from 49 NC’s, plus one further NC vote after the voting deadline had passed.
• The eUCP received 100% approval with two countries abstaining.
• The eURC received 97.5% approval (on a weighted basis) with one county voting ‘no’ and two countries abstaining.
• Based upon the above, both sets of rules will come into force from 1st July 2019.
A number of issues received specific attention during the course of the drafting, and a few of those of particular interest are outlined below.
The precedent for including ‘Preliminary Considerations’ was established in ISBP, and with the preamble to DOCDEX. The preliminary considerations are listed on a separate page to the rules in order to provide a distinction between the two.
The original aim was to align definitions with those used in local law. However, many legal definitions differ among themselves in formulation if not meaning. As a result, the definitions are modelled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce, which is the most widely imitated in eCommerce legislation. The UNCITRAL Model Law on Electronic Transferrable Records were also used as a reference point.
During the course of the drafting, it was considered whether or not the eUCP should incorporate the concept of UTC, as referred to in the URBPO, in order to define the latest time that electronic records could be presented to a bank. However, there was no definitive majority response. As stated in the ‘ICC Guide to the eUCP’ (version 1.0), an issuer would be well advised to state the time for the close of business in an eUCP credit. In view of the fact that practice is still evolving in this field, it was recommended that the UTC concept would not, at this stage, be included within the eUCP rules. Should it be deemed necessary, the concept could be included in a future version of eUCP.
This article was not included in previous versions of the eUCP and has been structured to align with the construction of UCP 600 article 5. UCP 600 article 5 does not address electronic records. The addition of “electronic records” in the eUCP is a key difference. Whilst it is acknowledged that the definition of “documents” includes “electronic records”, it is considered that this article provides clarity and transparency.
The rules do not provide guidelines on required data processing systems and focus principally on the electronic presentation of documents. As with all ICC rules, they cannot mandate which platforms/systems are acceptable—the rules must remain neutral in this respect. Any bank that engages in an eUCP or eURC transaction is responsible for maintaining a data processing system. This responsibility is a fundamental precondition for using the eUCP and the eURC. The term refers to any automated means (be it computerised, electronic, or any other) that is utilised for the processing and manipulation of data, for initiating an action, or for responding to data messages or performances either partially or in full.
This article requires that the eUCP credit or eURC collection instruction state the format of a required or permitted electronic record. Should this not be the case, the relevant banks take on any resultant risk. In view of the fact that data processing systems are unlikely to be able to access all formats, it is essential that any data received is readable by the relevant data processing system(s). As a result, if a credit or collection instruction fails to specify the required format, then the electronic records can be presented in any format. The direct consequence of this situation would be that banks would be in a position to disallow a presentation on the basis that they are unable to read the format of the electronic records.
Although the eUCP and the eURC do not define or explain the meaning of ‘electronic address’, the term signifies the precise electronic location or a proprietary system to which an electronic record can be sent. It would include a URL, an email address, or an address on a dedicated system. It was decided that there was no need to provide a definition, as any relevant requirements would be within the terms of the credit or collection instruction.
In the digital world, there is a greater deal of focus on the authentication of data.
Although used extensively throughout eUCP and eURC, it is deliberate that ‘authentication’ is not defined. The basis for this approach is the conviction that any purported definition would either unnecessarily duplicate the definition of ‘electronic record’ or, even worse, provide a specific link to existing technology. As referenced in the ‘ICC Guide to the eUCP’ (version 1.0), authentication is that process of screening incoming data as to identity, source, and error that is preliminary to it being deemed to have been presented.
A presentation under the eUCP cannot be considered as having taken place until the presenter provides a notice of completeness to the nominated bank, confirming bank, if any, or to the issuing bank, where a presentation is made directly. Such notice can be provided by electronic record or paper document. It is important that the notice of completeness identifies the credit to which it relates. Whilst the notice of completeness is a pre-requisite for a presenter, it is not required when a nominated bank delivers electronic records to a confirming or issuing bank.
With respect to the treatment of documentary credit amendments in the digital world, evolving practice will decide the most valid approach. At this stage, the handing of amendments is defaulted to UCP 600. The position in UCP 600 is that amendments must be accepted or rejected.
When applied to electronic records, the concept of originality is basically out-dated and has no real meaning. Many documentary credits, for a myriad of (not always necessary) reasons, require presentation of more than one copy of a document. Under an eUCP credit, such requirements are fulfilled by presentation of one required electronic record.
In the long run, this would be much preferable, and such a publication would provide immense guidance to practitioners. However, at this stage, there is no standard practice. As practice evolves, this will, inevitably, lead to drafting of such a publication.
It was recognised in the introduction to the initial ICC Guide to the eUCP (ICC Publication no. 639) that the likely end of the evolution to electronic presentations is automated compliance checking systems in the documentary credit field. This is all too apparent when looking at evolving technology and digital trade finance, with the advent of the Internet of Things, Distributed Ledger Technology, Smart Contracts, Artificial Intelligence, and Machine Learning.
As mentioned above, in June 2017, the ICC Banking Commission launched the “Digitalisation in Trade Finance Working Group”. The aim of the Group is to identify strategies to overcome the constraints of digitalising trade finance—such as a reliance on paper-based practices, a lack of recognition of the legal status of electronic documents, uncertainty over standards, and a general lack of clear legal and regulatory frameworks.
The Working Group will be the coordinating body on all work by the ICC Banking Commission related to digitalisation of Trade Finance with a mandate to identify ways to overcome the abovementioned obstacles. Main objectives include:
• Evaluate existing ICC rules in order to ensure they are ‘e-compliant’;
• Develop a set of minimum standards for the digital connectivity of service providers;
• Examine the legal and practical issues related to the validity and value of data and documents in digitised form.
The content of the eRules will be continually monitored in order to ensure applicability. The support of trade practitioners will be an essential element moving forward. These rules provide many benefits in advancing documentary credits and collections in a digital environment and ensuring the continued relevance of these valuable instruments in mitigating trade risk.
Existing ICC rules, such as UCP 600 and URC 522, whilst being invaluable in a paper world, provide limited protection when applied to electronic transactions. It is inevitable that traditional trade instruments will, over time, inexorably move towards a mixed ecosystem of paper and digital, and, ultimately, to electronic records alone.
In this respect, it is important the market recognise that the new rules provide many benefits in advancing traditional trade solutions in a digital environment:
• Safeguarding applicability and guaranteeing relevance in a constantly evolving digital trade world
• Extending the mitigation of risk from a paper environment to the electronic milieu
• Explicitly and unambiguously supporting the usage of electronic records
• Conformity and congruence as opposed to divergent local, national and regional practice
• Shared understanding of terminologies and objectives
• Confidence in a set of independent and trusted contractual rules
• Uniformity, consistency and standardisation in customs and practice
• Enabling and supporting trade finance between regions and countries regardless of underlying economic and judicial structures
Development of the eRules would have been impossible without the ongoing support of the ICC Banking Commission Secretariat and individual ICC National Committees. Thank you to all involved, with specific acknowledgement to David Bischof, Olivier Paul, and Laura Straube.
Particular thanks are given to the eRules Drafting Group, details of which are provided in Appendix 5.
I also extend my gratitude to my co-chair, Gary Collyer. Without his input, this work would not have proved possible.
Last, but far from least, a reminder that this publication would not be in existence were it not for the groundbreaking initial efforts of Jim Byrne and Dan Taylor.
David Meynell
Senior Technical Adviser, ICC Banking Commission
Co-chair, eRules Drafting Group
June 2019