Article

The new ISBP: keeping up with the times

by David Meynell

Change is inevitable ... change is constant.

Benjamin Disraeli, 1867

My first contact with standard banking practice was way back in April 1997 at the ICC Banking Commission meeting in Shanghai. Representatives of ICC's US National Committee showed me a publication entitled "Standard Banking Practices for the Examination of Documents" (SBPED), which covered standard banking practices jointly agreed by the US Council on International Banking and the Mexican Bankers Association. It was immediately obvious that this could be expanded into a global agreement under the auspices of ICC.

As we all know, this was completed in 2003 with the publication of ISBP 645, and the subsequent updated ISBP 681, which provided alignment with UCP 600 in 2007. The 2007 revision left much of ISBP unchanged, although certain alterations had to be made. UCP 600 required a few years of practice before any significant adaptation of ISBP could be implemented. Fortunately, many of the required changes have been enshrined in ICC formal Opinions issued since 2007.

Operational impact

It is important to note that ISBP reflects a consensus of standard banking practice around the world in connection with the examination of documents under documentary credits. Ideally, many of these practices would have already incorporated in the daily activity of trade finance departments in banks. However, experience proves that this is not always the case. Therefore, it's expected that most banks will need to carry out an operational review in order to ensure they are aligned with the new ISBP. Change is not made without inconvenience, as Samuel Johnson observed in 1755.

One particular problem I've encountered over the years since ISBP was first introduced has been that too many practitioners regard ISBP as a "bank-only" publication to assist bankers in checking documents. No doubt this is partially correct, but it's often forgotten that the ISBP is also an invaluable guide for exporters in their preparation and submission of documents. By understanding how documents under documentary credits are handled by banks, exporters have the opportunity to enhance compliance with the terms and conditions of credits and thereby to reduce discrepancy rates. Education in the wider world, outside of the banking environment, is essential to assure further success with the ISBP.

With regard to ISBP's content, I've always considered it to be an essential publication. However, my personal view is that an even greater benefit could have been realized if the remit of ISBP had been widened. At the outset of the latest ISBP revision, it was mooted that, in addition to including additional documents seen in most documentary credits, it could also be advantageous to create an additional section or sections to cover various aspects of handling documentary credits. Unfortunately, insufficient feedback was received from ICC national committees, and in March 2012 the plans for such an "extension" were dropped. Perhaps this is one for the future!

So what do we have in the latest revision? The core features have been retained, if not strengthened, and further components have been added. It's not the intention of this brief overview to provide a detailed synopsis of all the provisions of ISBP. Such an approach would require a full one-day workshop, which can, of course, be provided. For the purposes of this article, I will concentrate on a few key features of ISBP 745.

Usage of virgules ('/') and commas

Ideally, certain grammatical usage, including the use of virgules ('/') and commas would be fairly constant globally, but this not the case. ISBP 745 provides clear guidance in stating that usage of either a virgule or a comma means that any combination of the stated options, either singular or plural, is acceptable.

Certificates, certifications, declarations and statements

When certificates, certifications, declarations and statements are required by a credit, they are to be signed. Whether or not they need to be dated depends on the type of document requested, its required wording and the wording that appears in it.

Copies of transport documents covered by UCP 600 articles 19-25

Articles 19-25 only refer to original documents, not copies. Accordingly, a copy is only to be examined under UCP 600 sub-article 14 (f ). Data need not be identical but must not conflict. Copies of transport documents are not subject to the default presentation period of 21 calendar days.

Correction and alteration

It's very important that corrections to documents be handled in a consistent way. ISBP clarifies the process for "beneficiary" and "non-beneficiary"' documents, and additional interpretation is provided concerning documents that have been legalized, visaed or certified. Further, ISBP 745 explains that any correction of data in a document issued by the beneficiary (with the exception of drafts), or any correction of data in a copy document, need not be authenticated.

Dates

The question of dates is contained in a fairly detailed section and provides concise information as to how dating requirements for each type of document are to be observed.

Documents for which the UCP 600 transport articles do not apply

In accordance with standard banking practice, documents for which the UCP 600 do not apply include documents commonly used in relation to the transportation of goods, such as but not limited to, delivery notes, delivery orders, cargo receipts, forwarders' certificates of receipt,forwarders' certificates of shipment, forwarders' certificates of transport, forwarders' cargo receipts and mate's receipts. The implication is that a condition in a credit that presentation is to occur within a certain number of days after the date of shipment will be disregarded for such documents, and that the default presentation period of 21 calendar days stated in UCP 600 subarticle 14 (c) does not apply to them.

Expressions not defined in UCP 600

As practitioners know, a number of common expressions used in credits are not expressly defined in UCP 600, i.e., "shipping documents", "stale documents acceptable", "third party documents acceptable", "third party documents not acceptable", "exporting country", "shipping company" and "documents acceptable as presented". ISBP 745 states that these expressions should not be used. Nonetheless, in the unfortunate event they are, a meaning for each has been provided in ISBP 745.

Language

This is a very important section, and all parties to a documentary credit are advised to pay close attention to the content. In essence, when the language of the documents is stipulated in the credit, data are to be in that language. When the credit is silent with regard to language, documents may be issued in any language. If the credit allows two or more acceptable languages, the confirming/nominated bank may restrict the number of acceptable languages as a condition of its engagement in the credit. If it does not so restrict, then it is required to examine the data in all of the acceptable languages appearing in the documents.

Mathematical calculations

When the presented documents indicate mathematical calculations, banks only need to determine that the stated total in respect of criteria such as amount, quantity, weight or number of packages, does not conflict with the credit or any other stipulated document.

Originals and copies

Experience has proved that this is never an easy subject in our technological age, but it's one that cannot be avoided. I believe that this section of ISBP 745 will be necessary guidance to the identification of what is considered to be an original or a copy.

Signatures

This section emphasizes that signatures need not be handwritten and can be in a variety of methods as defined in UCP 600. It also notes that statements on a document such as "This document has been electronically authenticated" or "This document has been produced by electronic means and requires no signature" or words of similar effect do not, in themselves, represent an electronic method of authentication in accordance with the signature requirements of UCP 600 article 3. An important new addition is that a statement on a document indicating that authentication may be verified or obtained through a specific reference to a website (URL) constitutes a form of electronic method of authentication in accordance with the signature requirements of UCP 600 article 3. However, banks will not access such websites to verify or obtain authentication.

Conclusion

Of course, the ISBP is worthless if it is not supported and promoted by those in the trade finance world. To paraphrase Benjamin Franklin at the signing of the Declaration of Independence in 1776, we must all work together or, most assuredly, we shall all hang separately.

I can only endorse the hope of Kim Sindberg in the following article that ISBP 745 will be universally accepted as a comprehensive tool providing added value to practitioners involved in documentary credits.

David Meynell is the owner of TradeLC Advisory (www.davidmeynell.com), an independent trade advisory and consultancy service. His email address is davidmeynell@aol.com

ISBP 745 - a significant milestone

by Kim Sindberg

At the ICC Banking Commission meeting in Lisbon on 17 April, the new ISBP was approved on a vote of 87-1. Only one country, Singapore, voted "no". In this article, I will argue that ISBP 745 is a significant milestone that will be helpful to those working with documentary credits on a daily basis - be they document examiners in a bank, export officers in a production company or persons working in an accounting department.

Need for a new ISBP

The first version of the ISBP, ICC publication 645, dates back to 2002. The following version, ISBP 681, was an updated version intended to align it with UCP 600. The current revision, ISBP 745, is the first version that provides a comprehensive overview of international standard banking practice for documentary credits issued subject to UCP 600.

Implementation of the new UCP gave birth to new practices - but not in one stroke. For that reason it was correct to merely update the ISBP in 2007 to bring it in line with UCP 600, mainly in respect of terminology. Likewise, it was a correct decision some six years later to present a new version of the ISBP in light of documents and practices that UCP 600 - as well as the related industries - have created.

Implementation date

One of the issues that caused controversy is the absence of an implementation date for ISBP 745, there is only a publication date. Following its approval in Lisbon, Gary Collyer stated that it was in force as of 2007, i.e., when UCP 600 came into effect. This, of course, is a provocative statement: how can a publication be in force seven years before it's published?

A more nuanced way to look at this is the following: in order to understand the ISBP, one must look at the difference between rules (UCP 600) and practices (international standard banking practice).

UCP 600 article 2 includes the following definition of what constitutes a complying presentation under a documentary credit: "Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice." This definition provides a hierarchy of tests concerning how to determine if a presentation is compliant:

1) First, the wording of the documentary credit. This means that any condition in a documentary credit that excludes or modifies the UCP 600 will prevail.

2) Second, the UCP 600. Ideally, rules (in this case, UCP 600) are static. They are the foundation for any documentary credit issued subject to them.

3) Third, "international standard banking practice". The latter is the tricky part. It is a catch-all phrase that includes the preponderance of "practices" that currently apply to a documentary credit. These come from various sources - ICC Opinions, DOCDEX Decisions, court cases AND the ISBP.

Practices, contrary to rules, are not static. They move with the relevant industry. Technology, processes, etc., change over time, and these changes mean that practices change.

Some changes appear slowly; others seem to come out of the blue. An example of the latter is the signing of transport documents by a branch of the carrier. The original ISBP drafters did not see this in the market when ISBP 645 was drafted, but it was there when ISBP 745 was created1. This changed practice is now documented in ISBP 745.

But when would a new practice be applicable to a documentary credit issued subject to UCP 600? One cannot really say. Therefore, it makes no sense at all talking about an "in force" or "implementation date" for the ISBP. The fact is that the world changes and that changes the practice in different industries, which has an influence on international standard banking practice.

An example can be found in the ICC Opinions. In some cases, these have changed. There are instances in which new Opinions have overruled old ones. Is this because the old Opinion was wrong? No, generally it was because a practice had changed.

The same principle applies to ISBP 745, which is a selected collection of international standard banking practices as they exist right now. Most of the text is the same as it was before, but much has been expanded, elaborated upon and clarified, and, in a few cases, has changed because practice has changed2.

Old and new practices

ISBP 745 is more than twice the length of ISBP 681, so there are a number of new practices documented, and "old" practices have been elaborated upon to describe them in a clearer way. Here are some examples:

The dating of certificates

ISBP 681 paragraph 14 included the following statement: "Although it is expected that a required certificate or declaration in a separate document be dated, its compliance will depend on the type of certification or declaration that has been requested, its required wording and the wording that appears within it."

The somewhat vague wording made it hard to apply. Therefore, ISBP 745 has restated it as follows: "Whether a certificate, certification, declaration or statement needs to be dated will depend on the type of certificate, certification, declaration or statement that has been requested, its required wording and the wording that appears within the document ... ".

Indeed, ISBP 745 goes one step further and offers two examples: one in which the dating of a certificate is required, and one where it is not, thereby making the text easier to comprehend and apply.

Expressions not defined in UCP 600

The section of ISBP defining some of the terms used in documentary credits, but not defined in the UCP 600, has been expanded to include "third-party documents not acceptable," "shipping company" and "documents acceptable as presented". The other definitions in past versions of the ISBP have been elaborated upon.

The invoice and the nature, classification or category of the goods

One of the recurring challenges document checkers face concerns the description of the goods in the invoice. The UCP 600 rule is that the goods description in the invoice must correspond with that appearing in the documentary credit3. ISBP 745 offers more assistance than its predecessor in applying the rule by stating that the goods description in the invoice is not to refer to a different nature, classification or category of the goods than what is reflected in the documentary credit. It includes two examples to illustrate this point.

Instalment drawings or shipments

Also new to ISBP 745 is an elaboration of language concerning the interpretation of "drawing or shipment by instalments within given periods4". It has now been made clear (again with examples) that "given periods" are a sequence of dates or timelines with a start and end date for each instalment. A series of latest dates are not "given periods5".

Indication of name and address of delivery agent at port of discharge

New to the ISBP is a paragraph stating that when a documentary credit requires a bill of lading to indicate the name, address and contact details of a delivery agent, at or for the port of discharge, the address need not be one that is located at the port of discharge or within the same country as that of the port of discharge.

These are just a few of the valuable additions to ISBP 745.

Conclusion

ISBP 745 is a comprehensive work. Documentary credit from experts the world over have invested thousands of hours in its creation. No doubt it is not perfect. There may be points on which reasonable people may disagree; after all, this is a compromise fashioned by representatives from many different countries, so it would be strange if everyone were to agree to everything.

My hope is that despite some disagreements, ISBP 745 will be universally accepted as a comprehensive tool that brings undisputable value to the people working on a daily basis with documentary credits.

Kim Sindberg is Trade Finance Consultant at Sindberg Consult. His e-mail address is kim@kimsindberg.com

1. In fact, two ICC Opinions were given on the subject at the same meeting: TA 748 and TA 750rev were both approved at the ICC Banking Commission meeting October 2011.

2. This is elaborated on in the blog-post "The Second Unfair Yes- Vote" http://www.lcviews.com/index.php?blog_id=67.

3. UCP 600 sub-article 18 (c).

4. UCP 600 article 32.

5. For more information refer to my article regarding UCP 600 article 32: "The ambiguities in UCP article 32" published in DCInsight, Vol. 18 No.3, July-September 2012.