URBPO Draft 2 URBPO Drafting Group ICC Banking Commission November 2012 Mexico City 2 Agenda Background and Status Key Points URBPO Articles Next Steps Uniform Rules for Bank Payment Obligations (URBPO)
Background and Status June 2012: Release of Draft 1 and guidance notes to ICC National Committees July 2012: Detailed comments received from 21 National Committees August 2012: Comments from Consulting Group September 2012: Release of Draft 2 to ICC National Committees
As these rules cover a new concept in trade finance, guidance notes are again a key feature of draft 2 and have been updated to reflect the changes made to the text of the articles; changes in the order of the sub-articles; and to provide further information in response to comments made by National Committees
Additionally, the BPO Educational Group provided various documents that will aid in review of the draft text and further understanding of the BPO product
3 4 Agenda Background and Status Key Points URBPO Articles Next Steps Uniform Rules for Bank Payment Obligations (URBPO)
Key Points The BPO is an alternative instrument for trade settlement. It is designed to complement existing solutions and NOT to replace them. Similar to a letter of credit under UCP, a collection under URC and a guarantee under URDG, the actual settlement of a BPO is outside the scope of the URBPO. The URBPO exist in the bank-to-bank space. The rules do not cover the interaction between a bank and their corporate client. The interaction between the banks is to be seen to be within a collaborative space where the banks use a common transaction matching application (data matching engine) for a data match to occur and for this purpose the rules offer clear guidelines. The bank to corporate space is seen to be within a competitive space, one in which the banks are able to differentiate themselves from each other by way of the products and services that they offer based on the strength of a BPO being issued.
5 6 Agenda Background and Status Key Points URBPO Articles Next Steps Uniform Rules for Bank Payment Obligations (URBPO)
7 URBPO draft 2 Article 1 Scope Article 10 Undertaking of an Obligor Bank Article 2 Application Article 11 Amendments Article 3 General Definitions Article 12 Charges Article 4 Message Definitions Article 13 Disclaimer on Effectiveness of Data Article 5 Interpretations Article 14 Force Majeure Article 6 Bank Payment Obligations (BPO) vs. Contracts Article 15 Unavailability of a Transaction Matching Application Article 7 Data v. Documents, Goods, Services or Performance Article 16 Applicable Law Article 8 Expiry Date and Submission Article 17 Assignment and Transfer Article 9 Role of an Involved Bank National Committee Feedback Significant reduction in quantity of comments good sign Proves the value of Educational material ... which should now be intensified 19 pages of comments from 22 countries Consolidated comments only received on 1 st November so further in-depth review required Where comments have been provided on Guidance Notes, these will be considered for Draft 3 Formatting / grammatical changes will be reviewed and accommodated where relevant Every comment received will be reviewed and considered
8 General Request for article indicating that criteria for Data Match / Mismatch covered by a TMA rulebook and not URBPO. DG will look at possibility of incorporating within the definitions of Data Match and Data Mismatch.
As it is mandatory to use a TMA it seems more appropriate to use the term the TMA rather than a TMA. The TMA suggests that there is only one which is true today, but tomorrow ..
Is it intended that Guidance Notes notes be included in final publication? Guidance notes will not be included but final Rules will incorporate an Introduction, and prior to implementation it is expected that there will be a commentary to the rules. In addition, significant educational material will be made available.
9 Article 1: Scope
Certain Guidance Notes essential to understand the context of the rules which suggests that the rules may lack clarity in places. Rules written in more of a legal context than operational. Needs to be noted that this is a new product and therefore requires more guidance than usual. Input to rules has been as much operational as legal. Specific examples would be useful to pursue this issue further. Document will be re-visited in order to ascertain whether the individual rules can be understood as a stand-alone.
10 Article 2: Application Rules intended to be technology-neutral, so logically also standards neutral. Suggest avoiding restriction to TSMT messages: i) need for synchronisation to ensure that at all times URBPO reflect current ISO standard; ii) reference to specific message standards represents a departure from normal ICC rules procedure Standards are essential to ensure interoperability and multi-banking ref. LC / MT 7xx.
Without standards in the electronic environment, it will prove impossible to achieve seamless data transfer. Standards ensure consistency and uniformity of format and terminology through use of a common data dictionary.
11 Article 3: General Definitions Separate URBPO from underlying message standards. Include further definitions such as buyer / seller. At present the rules are designed on a bank to bank basis.
The title of entities is driven as much by standards as anything else.
Needs a Guidance Note explanation of where an Obligor Bank may be different to the Buyers Bank. Agreed.
Is this statement correct? How is this affected by article 17: this implies to a bank other than Recipient Bank. It is correct to the extent that assignment will not occur in every case and the recipient bank will give up its right to proceeds if they agree to an assignment.
Are the words Bank Payment Obligation covered by copyright? No.
12 Article 4: Message Definitions
Alphabetical order or process order? Majority support for alphabetical, however educational material will highlight process order.
The point was raised that if the Submitting Bank can only withdraw in the event of force majeure occurring, it might be useful to state this in Article 11(g). Agreed.
In the event of force majeure such as failure of communications, how should Submitting Bank send the special request message? Whats the deadline for Submitting Bank to notify the involved bank? We are investigating.
If these definitions will automatically change when ISO makes changes it must be stated as a rule and incorporate an effective date. This ought to be stated as a rule. Should also have a Guidance Note discussing this. How will the ISO changes / updates take effect? We are investigating.
13 Article 5: Interpretations
Branches of a bank in the same country cannot be considered a different bank. Legal, regulatory and compliance issues. What is the background, please clarify. Should be in line with UCP600. No comparison with UCP.
14 Article 7: Data vs. Documents, Goods, Services or Performance
Inclusion of "documents" here only supports our view that the product is designed as too far distant from the underlying transaction. There will be occasions where the data is extracted from paper documents. Reference to documents was added as a specific request to comments in respect of Draft 1. This may be expanded to refer to documents or electronic documents.
15 Article 8: Expiry Date and Submission
Consequences if no expiry date mentioned? Suggest adding An Established Baseline that does not state an expiry date is [insert consequence]. Each BPO must have an expiry date.
What happens if someone attempts to send a Data Set after the deadline? Data Mismatch will arise.
23.59.59 is the Obligor Bank timing or the Recipient Bank? The UTC time which is the timing that a TMA should be applying.
16 Article 9: Role of an Involved Bank
Since the submission is purely data and the matching is done electronically, we are of the opinion that the submission is received when it is received regardless of whether or not the bank is open or closed. Need to be open to actually receive.
Meaning of / replace / parameters of without delay. Guidance Note: In response to comments from national committees commenting on the meaning of promptly, the word has been changed to without delay thereby bringing the concept and meaning in line with other ICC rules. It should be noted that the wording refers to acting upon the content of a message and not necessarily the physical payment under a BPO.
Implies there is no established Baseline in case any Obligor Bank is not willing to give a BPO. In scenario with more than one Obligor Bank, the entire Established Baseline will be void based on refusal of only one Obligor Bank. Agreed, but .
What is the impact and the consequence of a TMA sending the message prior to the agreement of the Obligor Bank? Covered by the agreement with the TMA.
17 Article 10: Undertaking of an Obligor Bank
New wording suggested to reflect that the crucial issue is that in the case there is a Data Mismatch an Obligor Bank is only bound once a Mismatch Acceptance Notification has been sent by the TMA. Agreed to be confirmed.
A BPO is an irrevocable and independent undertaking of an Obligor Bank, thus the decision of an Obligor Bank to continue its obligation by accepting a Data-Mismatch must not depend on the decision of any other Obligor Bank. It is the Buyers Bank that accepts the mismatch, not the Obligor Bank. The Obligor Bank must however confirm its continued role.
Include a wording to allow for prepayment. Baseline can be amended to force a pre-payment.
It is mentioned that the buyers bank can reject the submission and thereby the obligor bank is not obligated to pay. We believe this should be elaborated upon; i.e. how to reject? When to reject? Further we fail to understand (given we read this as is intended) that acts or no acts of the buyers bank can obligate the obligor bank. Reject of mismatch = no obligation.
18 Article 11: Amendments Article 11 should refer to the amendment of BPO and not to the amendment of Established Baseline only. BPO is a block of data within the Baseline.
We do not understand why each Obligor Bank must receive a Full Push Through Report when an amendment concerns only one BPO. This is not the normal way to amend one undertaking such as a BPO. A BPO may have more than one Obligor Bank.
19 Article 12: Charges
Why should Obligor Bank be primarily liable for charges? Changed based on comments received, but probably should be Buyers Bank.
20 Article 13: Disclaimer on Effectiveness of Data
Following the language of Article 34 of UCP 600 too closely could result in an unexpected result. The problem that arises in our view is that whereas Article 34 clearly refers to documents, goods, services or performance of a third party, Article 13 of URBPO refers, inter alia, to ANY data. Our concern is, therefore, that this may inadvertently include data actually generated by an involved bank for which such bank is responsible. Agreed, solve by adding of a third party?
21 Article 14: Force Majeure Re-draft as follows, An Involved Bank assumes no liability or responsibility for the consequences arising out of the interruption of its business, including its inability to access a TMA, including a failure of equipment, software, or communications network, caused by Acts of God, riots, civil commotions, insurrections, war, acts of terrorisms, or by any strikes or lockouts or any other causes beyond its Control. Agreed.
What happens to BPO which expires during interruption of services with no Data received? No data match = no obligation.
The principle established here is contrary to the rules provided until now by the ICC, inter alia contrary to the UCP (article 36, 2d alinea) and URDG (article 26), and contrary to what decided courts in many jurisdictions and applicable laws. The principle here provided is totally inacceptable. Will discuss further.
22 Article 14: Force Majeure Add at the end of the sentence whether such Data Match or Mismatch Acceptance occurred before or after the expiry date of the BPO. To clarify that the critical time line is the submission of data, not when the TMA runs the match test. NO. It is the matching that matters, not the submission.
We felt that there may well be a greater risk to the Recipient Bank if the TMA is to be issued by a bank using a proprietary TMA platform. It would not be appropriate to suggest these be prohibited; however, the final URBPO notes may want to consider pointing out this risk to its member banks. This will be for the Involved Banks to agree in an agreement with the TMA.
23 Article 16: Applicable Law
Jurisdiction provision required. There is currently no field within the ISO TSMT messages to indicate a place of jurisdiction.
Two comments, one requesting deletion with no reason given, and one stating that as a matter of English law, the rules do not supplement the applicable law but are rules to be applied under the applicable ( e.g. English) law. DG will seek further feedback.
Proposal to re-draft as follows: In addition to its obligations under these rules, an Obligor Bank is also required to comply with applicable law or regulatory requirements. Counter- proposal to delete as redundant / not a rule but a guidance. Drafting Group recommends accepting the re-draft.
24 Article 17: Assignment and Transfer
In line with UCP and URDG, suggest providing for separate provisions for assignment of proceeds and transfer. Initial thought process is that article 17 should be assignment of proceeds only. Then to discuss the feasibility and potential for transfer.
25 URBPO: Other comments ICC Uniform Rules for Bank Payment Obligations should accurately state the duty and function of the Recipient Bank. Recipient Bank has no obligation.
Recommend seller to be beneficiary of the BPO. Not mandated.
If beneficiary remains Recipient Bank, suggest right of receivables from exporter to be mentioned. Outside the remit of URBPO.
Obligor Bank undertake to pay seller. Beneficiary is Recipient Bank.
Is it possible (for clarification purpose) to include in these Rules that Data should be submitted in the same language of the BPO unless stated otherwise. To be agreed in the TMA agreement. 26 27 Agenda Background and Status Key Points URBPO Articles Next Steps Uniform Rules for Bank Payment Obligations (URBPO)
Next Steps 30 October 2012: Deadline for Draft 2 comments from National Committees - DONE
December 2012: Drafting Group will produce Draft 3
January 2013: Comments on Draft 3 from ICC National Committees