Documentary Credits Practice: an update from the ICC Banking Commission meeting: Tbilisi October 2018


The Banking Commission agenda included a session entitled ‘Documentary Credits Practice: Controversy & Guidance'.


Chaired by David Meynell, the panellists included Gabriele Katz, Emile Rummens, and John Turnbull.


> Usage of drafts under documentary credits: is there a real need?

> Negotiation: do we have a common understanding?
> The future of UCP: what's next?
> Discrepancy rates: why are they still so high?


A fascinating discussion ensued with interactive audience participation, and then continued after the Opinions session with the other Technical Advisors, Kim Sindberg and Glenn Ransier, getting involved.


Usage of drafts under documentary credits

A draft ‘Guidance Paper' on this subject had been distributed to ICC National Committees prior to the Tbilisi meeting. Based on responses received thus far, a further four weeks have now been allowed for feedback. In the meantime, it is worth noting that there was a clear consensus amongst participants in Tbilisi that sight drafts add no value to the documentary credit process.


There also appears to be a majority support for usance documentary credits available by deferred payment to be used as a more common alternative to availability by acceptance of a draft, unless there is specific commercial, regulatory or legal reason to create a bankers' acceptance. We will return to this topic once the results have been received from ICC National Committees.



It has been suggested from various quarters that, due to misunderstanding as to what negotiation actually means, negotiation should be removed from UCP as a form of availability. Statistics provided by SWIFT for the ICC's 2018 Global Survey indicated that 73.2% of all credits issued in 2017 were available by negotiation. Negotiation credits are predominant in Asia where over 70% of the credits issued and received remain within Asia.


Considering the wide use globally, removing the concept of negotiation from the UCP is not a practical option and, in any event, would not stop letters of credit being issued available by negotiation.


What it would do is create uncertainty as to its application because banks will create different interpretations that suit their needs at a specific time. While some banks may not like or fully understand the practice, it is used extensively. Removal of negotiation would be detrimental to practice.


As mentioned during the session, it is considered vital that UCP's unique characteristic of global acceptance is maintained and suggestions for non-optional changes that only benefit particular business or geographic segments of the user base are opposed.


The future of UCP


It was quite revealing, and perhaps not surprising, that this session ended up being focussed on the actual problem that we face in the world of documentary credits, i.e., there are no real demanding issues with the rules, but there is definitely a lack of knowledge in the market in respect of practices, as exemplified by a very narrow access to ISBP 745. Those who are involved in training state that a repeated experience in workshops is the fact that so few practitioners have access to, and utilise the ISBP.


Such findings back up the conclusion of the UCP review from early 2017, wherein it was stated that a revision of UCP 600 was not required. The prime objective of a revision is to address developments in the banking, transport and insurance industries. Significant feedback in the UCP review evidenced that any problems lay not with the rules themselves, but with the application of the rules, i.e., practice ("international standard banking practice").


With regard to the future of UCP itself, David Meynell conjectured that at an indeterminate date in the future digital environment, we will see one single, complete set of rules for digital trade encompassing both open account and transactional flows.


Discrepancy rates


It has been stated on many occasions, both on here and elsewhere, that discrepancy rates are definitely a matter of concern.


A few intriguing points were raised as to why such a high percentage of presentations under documentary credits are refused on initial presentation. These include:


-       An element of fear in that it may be perceived that if a discrepancy cannot be located, then the document examiner is not doing their job properly.

-       The need to obtain discrepancy fees.

-       Documentary credits include many unnecessary terms and conditions.

-       Too much complexity in the documentary credit making it impossible for the beneficiary to comply.


We have always believed that access to, and transparency of, existing practice is the key to alleviating this problem. This will ensure understanding, simplicity and efficiency, leading to a reduction in discrepancy rates and associated fees.

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