Transcript BPO Draft 2_Mexico_with comments

Bank Payment Obligation
URBPO Draft 2
URBPO Drafting Group
ICC Banking Commission November 2012
Mexico City
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Agenda
Uniform Rules for Bank
Payment Obligations (URBPO)
• Background and Status
• Key Points
• URBPO Articles
• Next Steps
2
Background and Status
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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
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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
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Additionally, the BPO Educational Group provided various documents that will aid
in review of the draft text and further understanding of the BPO product
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Agenda
Uniform Rules for Bank
Payment Obligations (URBPO)
• Background and Status
• Key Points
• URBPO Articles
• Next Steps
4
Key Points
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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.
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Agenda
Uniform Rules for Bank
Payment Obligations (URBPO)
• Background and Status
• Key Points
• URBPO Articles
• Next Steps
6
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
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National Committee Feedback
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Significant reduction in quantity of comments – good sign
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Proves the value of Educational material ... which should now be intensified
19 pages of comments from 22 countries
Consolidated comments only received on 1st 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
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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.
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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.
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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.
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Document will be re-visited in order to ascertain whether the individual rules can be
understood as a ‘stand-alone’.
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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.
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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
Buyer’s 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.
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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? What’s 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.
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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.
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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’.
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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.
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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.
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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 buyer’s 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 buyer’s bank can obligate the obligor bank.
Reject of mismatch = no obligation.
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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.
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Article 12: Charges
Why should Obligor Bank be primarily liable for charges?
Changed based on comments received, but probably should be Buyer’s Bank.
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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”?
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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.
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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.
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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.” Counterproposal to delete as redundant / not a rule but a guidance.
Drafting Group recommends accepting the re-draft.
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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.
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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.
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Agenda
Uniform Rules for Bank
Payment Obligations (URBPO)
• Background and Status
• Key Points
• URBPO Articles
• Next Steps
27
Next Steps
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30 October 2012: Deadline for Draft 2 comments from National Committees DONE
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December 2012: Drafting Group will produce Draft 3
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January 2013: Comments on Draft 3 from ICC National Committees
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