THE FUTURE OF UCP 500

Dan Taylor Speaks With LCM About the Evolution of UCP 500 for Electronic Credits

At its May 2000 Banking Commission meeting, the ICC has established the Working Group on Electronic Credits. LCM has recently spoken to the co-chair of the Working Group, Mr. Dan Taylor, about the progress made and challenges that lay ahead.

LCM - What is the purpose and goal of the ICC electronic Supplement to the UCP?

Taylor - The marketplace was looking to the ICC for guidance in moving to electronic presentations under documentary credits. The Commission on Banking Technique and Practice recognized this fact and approved a working group in May 2000 to develop a bridge between the current UCP and the processing of the electronic equivalent of paper-based credits. It was recommended that this might best be achieved by a ‘supplement’ or ‘addendum’ to the UCP that would detail how specific UCP issues are to be treated for electronic issuance and presentation. I am pleased to be co-chairing the working group along with Rene Muller of Credit Suisse in Zurich.

After reviewing it’s mandate and after several meetings the working group released the first draft for comment by ICC National Committees in December 2000.

The working group concluded that its task was to create a supplement to UCP that would deal with the issues of electronic presentation. It did not see the necessity to address any issues relating to the issuance or advice of credits electronically since current market practice and the UCP allow for credits to be issued and advised electronically.

LCM - Is eUCP the official name now and, if yes, when was this decided?

Taylor - The official name for the work is ‘UCP Supplement for Electronic Presentation’ and uses the acronym ‘eUCP.’ It is not a rewrite of the UCP, but only a supplement that addresses the issues related to presentation by the electronic equivalent of paper documents. The eUCP cannot function alone but must be used in conjunction with the UCP.

LCM - Would the eUCP be incorporated into the credit? If not, why not?

Taylor - The credit would be issued incorporating the UCP and the eUCP. If the credit is issued only incorporating eUCP the UCP would be incorporated automatically. To avoid confusion between the UCP articles and the eUCP all of the eUCP articles will begin with an ‘e.’

Draft Article e1: Scope of the UCP Supplement for Electronic Presentation (eUCP)

a) The UCP Supplement for Electronic Presentation (‘eUCP’) shall apply to all documentary credits where they are incorporated into the text of the Credit. They are binding on all parties thereto, unless otherwise expressly stipulated in the Credit.

b) These articles are intended to supplement the Uniform Customs and Practice for Documentary Credits (1993 Revision ICC Publication No. 500) to accommodate presentation of electronic records in whole or in part under the Uniform Customs and Practice for Documentary Credits.

c) A Credit subject to the eUCP that does not indicate the applicable version is subject to the version in effect on the date the Credit is issued, or if made subject to eUCP by virtue of an amendment, on the date of that amendment.

d) Any modification of the eUCP must be expressly stated in the Credit or any amendment to the Credit.

LCM - When does the ICC plan to publish eUCP and will it have a new ICC Publication number?

Taylor - I don’t know, at this point, exactly how the ICC will issue the document. I would expect that future printings of UCP will include the eUCP and that the eUCP will be published alone for those who already have copies of the UCP. I am not sure that as a supplement it will have a separate publication number.

LCM - What was the main focus of the working group in approaching this project?

Taylor - First, much of the work is defining UCP terms in the context of electronic presentation. Most of the supplement is definitional in nature. Second, there was a need to create a few substantive rules to make electronic presentation work. From a conceptual standpoint one of the first decisions was whether to create the supplement just for electronic documents or to allow for mixed presentations with both electronic records and paper documents. The working group decided that in order to foster development of electronic presentation the supplement should allow for both paper and electronic. The result would be that all paper presentations would continue be handled under the UCP. A mixed presentation would be handled under the UCP and the eUCP - the paper under UCP and the electronic records under the eUCP. A presentation of all electronic records would be handled principally under eUCP.

LCM - What are the main issues still to be resolved in the eUCP?

Taylor - As I see it, there are several major points that are not completely resolved. Those issues are specially designated in the draft to solicite comment from ICC National Committees.

The first significant issue is whether the eUCP should have a different standard for reasonable time when a presentation consists of all electronic records. Text has been developed to cover this in Article e7 but no final decision has been made.

Draft Article e7: Notice of Dishonour and Preclusion

b) For purposes of the eUCP, if presentation is made only by presentation of electronic records, the reasonable time provided for in the UCP for the examination of documents is no less than three (3) banking days following the banking day when notice that the presentation is complete is received, and,

i. may be no longer than five (5) banking days, but,

ii. is up to seven (7) banking days if the issuing bank approaches the applicant for a waiver of discrepancies.

c) If presentation is made only by presentation of electronic records and the issuing bank and/or confirming bank, if any, or a nominated bank, decides to refuse the documents it must give notice to that effect

i. no later than the close of fifth banking day following receipt of the notice that the presentation is complete, or

ii. if the issuing bank approaches the applicant for a waiver of discrepancies, by the close of the seventh banking day following receipt of the notice that the presentation is complete.

The second significant issue is whether you can deal with the issue of inconsistency in electronic records. While inconsistency can be dealt with if you examine an electronic record manually it is an extremely difficult issue if computer examines the electronic record. Article e9 has been drafted to cover the issue, however, the working group has made no final decision.

Draft Article e9: Inconsistency between Electronic Records

If presentation is made only by presentation of electronic records an electronic record that complies with the Credit is deemed to be consistent with other electronic records presented that also comply with the Credit provided it can be linked to the same transaction.

We hope that the comments from ICC National Committees will provide some direction.

LCM - What major issues have already been resolved?

Taylor - The most important was realizing that there is little in the UCP that needs changing other than specifics regarding the electronic equivalent of paper documents. This issue is primarily a definitional issue. Once you decide how to define a term in the context of electronic presentation that term applies throughout. From the standpoint of the working group it was just as important what was not necessary to cover as what needed to be covered.

Specifically I think the decision was that all that needed to be covered was presentation not issuance, issues related to incorporation, the definitions, and how to treat the issue of ‘original’ in an electronic context.

LCM - What are the next steps in the process and what is the timeline for completion and implementation?

Taylor - The ICC National Committees have until February 12th 2001 to comment on the draft. The working group will then meet to consider those comments. A detailed schedule was distributed with the draft that set out a timetable given several variables, principally whether the eUCP can be approved at the May 2001 (Paris) or November 2001 (Frankfurt) Banking Commission meetings.

Tentative Timetable for Reviewing and Finalizing the eUCP

1. End December 2000 - First working party draft sent out for comment.

2. 12 February 2001 - First comments from ICC National Committees and Members due.

3. End February, early March 2001 - Working party meets to review first comments.

4. 16 March 2001 (approximately) - Revised working party draft sent out with deadline for comments around 6 April 2001.

5. Between 6-23 April 2001 - Working party reviews second set of comments.

6. Approximately 26 April 2001 - Revised draft sent to Banking Commission members and National Committees in advance of Commission meeting in May 2001.

7. 16-17 May 2001 - Banking Commission considers the revised draft and either approves it or asks for more time to receive additional comments.

8. 6 June 2001 - If the draft is approved by the Banking commission, it is submitted to ICC Executive Board for adoption on 6 June 2001.

9. 15 July 2001 (approximately) - If draft still requires more comment after the Banking Commission meets, these final comments will be due by 15 July 2001.

10. 2 October 2001 - Final draft, if necessary, sent to Banking Commission members.

11. 5-6 November 2001 - Banking Commission approves final draft (if not approved at previous meeting) and sends it to ICC Executive Board for approval on 8 November 2001.

12. June 2002 - eUCP goes into effect (Note: if approved at the earlier Banking Commission meeting in May and adopted by Executive Board in June, eUCP would go into effect in January 2002).

Dan Taylor is President and Chief Executive Officer of the International Financial Services Association and the IFSA Foundation. The International Financial Services Association is a trade association representing over 250 banks in the area of global financial services operations. The IFSA’s representation of the financial services community includes liaison with national and international organizations and governments, legislative and regulatory agencies. The IFSA Foundation offers extensive educational programs as well as research and publications on financial services operations. Mr. Taylor joined the IFSA in April 1989.

Mr. Taylor is also a Vice Chairman of the International Chamber of Commerce, Commission on Banking Technique and Practice. He was Chairman of the working group that created the Uniform Rules for Bank-to-Bank Reimbursements Under DocumentaryCredits and was a member of the working group that revised the ICC’s Uniform Customs and Practice for Documentary Credits and created the International Standby Practices (ISP98). He is currently a member of the Steering Committee for the ICC’s Electronic Commerce Project and co-chairman of the ICC Working Group creating a supplement to the Uniform Customs and Practice for Documentary Credits for ecommerce (eUCP). Mr. Taylor was an adviser to the National Conference of Commissioners on Uniform State Law

Drafting Committee for the revision of the Uniform Commercial Code Article 5 and has been actively involved in a number of projects of the United Nations Commission on International Trade Law. He is a past Chairman of the International Section and International Committee of the American Society of Association Executives.

Dan Taylor is a member of the Board of Directors of Letter of Credit Survey, Inc., the publisher of Documentary Credit World magazine. He is a member of the Advisory Boards of the National Law Center for Inter-American Free Trade, Global Management Group and LCconnect, Inc. Mr. Taylor is frequently quoted in the press and speaks regularly around the world on issues relating to the financial services operations industry. He has published numerous articles on financial services issues and is the author of Bank-to-Bank Reimbursements under Documentary Credits - A practical guide to daily operations.