Article

by André Casterman

In the last issue of DCInsight, I wrote an article about the Bank Payment Obligation (BPO), the joint SWIFT/ICC product that places a legal obligation on the issuing bank to pay the recipient bank subject to the successful electronic matching of compliant data. This is an update on recentBPO developments since my last article.

On 1 June 2012, ICC national committees received Draft 1 of the Uniform Rules for the BPO (URBPO). This first draft was the result of extensive work of the URBPO Drafting Group and the valuable input of the URBPO Consulting Group to two working drafts that have been shared since the February 2012.

As the scope and application of a BPO may not be known to all readers of these rules, the Drafting Group has produced a guidance document that offers detailed explanations on each rule. The URBPO rules will be presented at the Banking Commission meeting of November 2012 and be subject to approval at the spring 2013 meeting.

In the meantime, banks are confirming their strong interest to address the needs of their corporate customers using the future rules. A total of 38 banks have confirmed their current or future adoption of the presently available SWIFT's Trade Services Utility (TSU) BPO rules. The list of BPO banks has more than doubled since September 2011 when ICC and SWIFT signed their cooperation agreement to establish the BPO rules in the market. The number of corporates is also growing as the most advanced banks have already signed up close to 40 corporate customers, mainly in Asia/Pacific but also in the EMEA region. In all cases, buyers and sellers appreciate the major efficiency improvements that the BPO rules and the supporting electronic flows generate.

In May 2012, BP Chemicals and Vale went live on the BPO with Standard Chartered Bank. The major benefits for BP Chemicals is to improve their internal efficiency and to cut the risk of payment delay or default by providing assured payment on a specified date, subject to fulfilment of pre-determined conditions represented by data matching which is enabled by the underlying electronic messaging standards. As David Vermylen, Global Credit Manager, Petrochemicals at BP put it, "The BPO offers exporters a number of efficiency benefits through reduced document handling and lower confirming costs, and by conducting business with less paper compared to traditional letters of credit."

Standard Chartered clients can now benefit from assurance of payment and risk mitigation but through a much faster, paperless and fully automated process. The result is a less complex and more cost-effective settlement tool that accelerates the payment cycle. This is particularly useful in the commodities industry (such as oil, gas or petrochemicals) where the dependence on documents is not intrinsic to conducting trade (where, for example, the need for documents such as inspection certificates is minimal). This will also work in industries where the supply chain linkages between buyer and seller are strong.

Following is a list of banks that, as of June 2012, are adopting the BPO:

Americas:
Banco do Brasil, Banco Itaú, Bank of America Markets, BMO Capital, BNY Mellon, Citi, JP Morgan

EMEA:
Bank Al Etihad's, Barclays, BNP Paribas, Byblos Bank, Commercial Bank of Dubai, Commerzbank, Deutsche Bank, Fim Bank, First National Bank of S. Africa, HSBC, National Bank of Greece, Qatar National Bank, Standard Bank of South Africa, The Royal Bank of Scotland, UBS, Unicredit

Asia/Pacific:
ANZ, Bangkok Bank, Bank of China, Bank of Communications, BTMU, China Citic Bank, China Minsheng Bank, Hua Nan Bank, Kasikornbank, Korea Exchange Bank, Siam Commercial Bank, Standard Chartered Bank, SMBC

As readers can see, the list includes some of the world's most prominent banks, and it is lengthening all the time. When the joint ICC/SWIFT rules are completed, they will represent, as I said in the last issue of DCInsight, "a revolutionary development in trade finance", perhaps the most revolutionary since the introduction of the UCP in 1933

André Casterman is Head of Banking and Trade solutions at SWIFT and Co-Chair BPO Project at ICC. His e-mail is andre.casterman@swift.com