Uniform Rules for Forfaiting

Implementation Date 1 January 2013

Introduction

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Although forfaiting has traditionally been defined as the without recourse discounting of trade-related receivables, over the last 20 years it has evolved considerably. Modern forfaiting now encompasses many more instruments, structures and concepts than has ever previously been the case. As a versatile and flexible approach to raising finance for international trade it has great benefits for both providers and recipients of finance.

Forfaiting facilitates the provision of finance to the international trade community. It has the ability to make instruments that evidence payment claims liquid. By making payment claims easier to transfer, forfaiting enables them to be used as more than just a means of obtaining payment for goods or services delivered: they can be used to provide finance. The critical role forfaiting plays in securing financing for exporters and importers motivated ICC to involve itself in this area. The result is the ICC Uniform Rules for Forfaiting (URF), the first standard set of rules for forfaiting transactions. They have been produced in cooperation with the International Forfaiting Association (IFA).

The IFA had already produced a set of rules for the secondary market, the IFA Guidelines launched in 2004, and an Introduction to the Primary Forfaiting Market in 2008. The URF cover both markets. They can govern the initial sale of an instrument in the primary market and any secondary market sales of that instrument, if both or either of those sales is made subject to the URF.

The URF provides a set of rules for the sale of instruments used for financing trade and is designed to facilitate the sale of those instruments. The URF deal only with the transfer of a payment claim without changing it. This versatility means the URF can be used alongside the full and ever expanding range of instruments used to finance trade such as bills of exchange, promissory notes, documentary credits and invoice purchases.

The URF do not deal with the validity and enforceability of any payment claim transferred subject to them. They do, however, deal with the extent to which the selling party is responsible for the validity of the payment claim and its transfer. The parties will also need to select the method of transfer, e.g. endorsement, assignment or novation, suitable for the instrument evidencing the payment claim, to ensure the transfer is effective.

The URF have been structured so as to also permit the creation of debt undertakings. The precise nature and scope of these undertakings will be for the market to develop.

The IFA and ICC were able to draw on a deep pool of technical knowledge and practical experience when selecting the members of the drafting group for the URF. Drafts of the URF were presented to the full membership and constituency of the IFA and the ICC Banking Commission for comment and the drafting group considered the many comments it received in arriving at the final version of the URF. The drafting group and both organizations are confident that this combination has resulted in set of robust and functional set of rules that reflect market practice.

Model agreements have been provided to assist parties in using the rules. They are not part of the rules and therefore not mandatory, nor should they be relied upon without first carefully considering the requirements of the particular transaction and the legal system governing it.

I had the good fortune to chair the drafting group. The other members of the drafting group are listed below in alphabetical order.

Sean Edwards – Head of Legal, Sumitomo Mitsui Banking Corporation Europe Limited, United Kingdom

Lixin Guo – Head of Forfaiting, Corporate Banking Unit, Bank of China, China

Nicole Keller – Vice President, KfW IPEX-Bank GmbH, Germany

David Lilley – Head of European Trade Finance, ABC International Bank plc, United Kingdom

Lucio Matassoni – Vice President, Oversea-Chinese Banking Corporation Limited, United Kingdom

Waltraud Raderschall – Vice President, Commerzbank AG, Germany

Pradeep Taneja – Chair, ICC Bahrain Trade Finance Forum and Head of Trade Finance and Forfaiting Operations, Arab Banking Corporation BSC, Kingdom of Bahrain

Patrice Tournus – Global Head of Forfaiting, Crédit Agricole CIB, France

Geoffrey Wynne – Vice Chair of the Drafting Group – partner, SNR Denton UK LLP

I am grateful to them for their strenuous efforts and perseverance throughout the drafting process.

Donald R. Smith, Chair of the ICC Drafting Group
November 2012