UCP-600: An Overview
Md. Maznuzzaman
SVP & Head of Training
Islami Bank Training and Research Academy
What is UCP ?
▪ UCP IS A SET OF PRIVATE RULES FORMULATED BY INTERNATIONAL
CHAMBER OF COMMERCE (ICC) USED IN GOVERNING LETTER OF
CREDIT (DOCUMENTARY CREDIT) PRACTICE.
Session Outline
▪ Background
▪ Evolution
▪ Significance
▪ Functions
▪ Applicability
▪ Articles in group
▪ Article wise review
Background
▪ Necessity of cross border trade
▪ Consequences of First World War
▪ Role of ICC
▪ Threats of nationalism and Protectionism
Evolution
▪ First introduced in 1933
▪ Revision 01 (UCP 151) – 1951
▪ Revision 02 (UCP 222) – 1962
▪ Revision 03 (UCP 290) – 1974
▪ Revision 04 (UCP 400) – 1983
▪ Revision 05 (UCP 500) - 1993
▪ Revision 06 (UCP 600) – 2007
Significance
▪ Methods of payment
-- Cash in Advance
-- Open Account
-- Documentary Collection
-- Documentary Credit [LC]
▪ Banker’s relationship with the Documentary Credit operations
▪ Win win situation for both buyer and seller
▪ Avoiding trade disputes
▪ To cope up country’s trade with international standard
Functions
▪ Issuance of Documentary Credit
▪ Determining the responsibilities of parties
▪ Handling of documents
▪ Role of Transport Industry
▪ Role of Insurance Industry
▪ Making payment
▪ Protections under Documentary Credit
Applicability
▪ Buyers
▪ Sellers
▪ Banking Industry
▪ Transport Industry
▪ Insurance Industry
▪ Related regulatory authority
▪ Judiciary
Articles in group
▪ Application, Definitions and Interpretations (Article 1-5)
▪ Availability, Expiry Date and Place for Presentation (Article 6)
▪ Undertaking of banks (Article 7-8)
▪ Advising, Amendment and Transmission (Article 9-11)
▪ Nomination (Article 12)
▪ Reimbursement (Article 13)
▪ Examination of documents and nature of documents (Article 14-17)
Articles in group (Continued)
▪ Commercial Invoice (Article 18)
▪ Transport documents (Article 19-27)
▪ Insurance documents (Article 28)
▪ Extension of expiry date (Article 29)
▪ Tolerance, partial & installment drawing or shipment (Article 30-32)
▪ Hours of presentation (Article 33)
▪ Disclaimer and force majeure (Article 34-37)
▪ Transferable credit and assignment of proceeds (Article 38-39)
Article 01: Application
▪ Apply to any documentary credit including any
standby letter of credit when the text expressly
indicates that it is subject to these rules
▪ Binding to all parties unless expressly modified or
excluded.
Article 2
Definitions
Advising bank Credit
Applicant Honour
Banking day
Issuing bank
Beneficiary
Negotiation
Complying presentation
Confirmation Presentation
Confirming bank Presenter
Credit means any arrangement however
Article 2 named or described that is irrevocable and
Credit thereby constitutes a definite undertaking of
the issuing bank to honor a complying
presentation.
BANKING
DAY Banking Day: Two Principles
i. Banks are regularly open.
ii. Banksare open at their places to
perform an act
--issue
--advise
--amend
--examine
--honor
--negotiate
COMPLYING
PRESENTATION
Complying Presentation: Three Standards
i. The presentation must comply with the
terms and conditions of the credit.
i. The presentation must comply with the
UCP600 rules (except those which are
excluded or modified by the credit).
i. The presentation must comply with
International Standard Banking Practice.
Article 02
Three means:
❑ to pay at sight if the credit is available
by sight payment.
Honour
❑ to incur a deferred payment
undertaking and pay at maturity if the
credit is available by deferred
payment.
❑ to accept a bill of exchange (“draft”)
drawn by the beneficiary and pay at
maturity if the credit is available by
acceptance.
Article 3
Interpretations
▪ A credit is irrevocable even if there is no
indication to that effect.
▪ Branches of a bank in different countries are
considered to be separate banks.
Article 4
Credits v. Contracts
▪ A credit by its nature is a separate transaction
from the sale or other contract on which it may
be based.
▪ Banks are in no way concerned with or bound by
such contract, even if any reference is included
in the credit.
Article 5
Documents v. Goods, Services or
Performance
BANKS DEAL WITH DOCUMENTS AND NOT WITH GOODS,
SERVICES OR PERFORMANCE TO WHICH THE DOCUMENTS MAY
RELATE.
Article 07
An issuing bank is irrevocably
❑Issuing bound to honour (a complying
❑Bank presentation) as of the time it
Undertaking issues the credit.
❑Article 8
❑Confirming
A confirming bank is irrevocably
Bank’s
bound to honour or negotiate
Undertaking
(subject to availability) as of the
time it adds its confirmation to
the credit.
i. To have apparent authenticity
Article 9 of the credit or amendment.
TWO
RESPONSIBILITIES i. To advice accurately the terms
OF THE ADVISING
BANK
and conditions of the credit or
amendment received.
Article 12
Nomination
OBLIGATION OF A NOMINATED BANK
Nominating a bank does not obligate that bank to receive or examine
documents or to honor or negotiate EXCEPT when
(i) The nominated bank is the confirming bank OR
(ii) The nominated bank expressly communicates its agreement to honor or
negotiate to the beneficiary.
Article 14
Nominated Bank, Confirming Bank, if
Who will any, and the Issuing Bank must examine
examine a presentation to determine a complying
documents? presentation.
Article 14(b)
Time period for A nominated bank acting on its
examination of nomination, a confirming bank, if any,
Documents and the issuing bank shall each have
a maximum of five banking days
following the day of presentation
to determine if a presentation is
complying.
Article 15
Complying Presentation
a. When an issuing bank determines that a
presentation is complying, it must honour.
b. When a confirming bank determines that a
presentation is complying, it must honour or
negotiate and forward the documents to the
issuing bank.
c. When a nominated bank determines that a
presentation is complying and honours or
negotiates, it must forward the documents to the
confirming bank or issuing bank.
When a nominated bank
Article 16 acting on its nomination, a
confirming bank, if any, or
Discrepant
the issuing bank determines
Documents,
Waiver and that a presentation does not
Notice comply, it may refuse to
honour or negotiate.
A single notice stating:
Article 16
NOTICE OF i. that the bank is refusing to
REFUSAL honor or negotiate; and
ii. each discrepancy
iii. Fate of the document
Article 17
Original Documents and Copies
a. At least one original of each document
stipulated in the credit must be presented.
b. A bank shall treat as an original any
document bearing an apparently original
signature, mark, stamp, or label of the issuer
of the document, unless the document itself
indicates that it is not an original.
Article 18
Commercial Invoice
a. A commercial invoice:
i. must appear to have been issued by the
beneficiary (except as provided in article 38);
ii. must be made out in the name of the
applicant (except as provided in sub-article 38
(g));
iii. must be made out in the same currency as
the credit; and
iv. need not be signed.
❑ Transport Document Covering at
Least Two Different Modes of
Transport
TRANSPORT ❑ Bill of Lading
DOCUMENTS ❑ Non-Negotiable Sea Waybill
❑ Charter Party Bill of Lading
❑ Air Transport Document
❑ Road, Rail or Inland Waterway
Transport Documents
❑ Courier Receipt, Post Receipt or
Certificate of Posting
ISBP861 (134 & 135))
Article 20
If a credit requires
presentation of a bill of lading
Bill of Lading
(“marine”, “ocean” or “port-
to-port” or similar) covering
sea shipment only, UCP 600
article 20 is applicable.
❑ MUST INDICATE THE NAME OF THE
CARRIER.
EXAMPLES:
‘BILL OF
LADING’ ✓ ABC Co Ltd., the carrier (in the body of
the document)
✓ For ABC Co Ltd., as carrier. (while
signing)
SIGNED BY:
‘BILL OF ▪ the carrier or
LADING’ ▪ a named agent for or on
behalf of the carrier, or
▪ the master or
▪ a named agent for or on
behalf of the master
If signed by an agent:
‘BILL OF ▪ The name of the agent must be
LADING’ shown.
▪ Any signature by an agent must
indicate whether the agent has
signed for or on behalf of the
carrier or for or on behalf of the
master.
If signed by the master or by an
agent for or on behalf of the
‘BILL OF master :
LADING’
The name of the master
(captain) need not be
stated.
Sample
of
Bill of Lading
Bill of
Lading
For the purpose of this article,
transhipment means unloading
Transhipment from one vessel and reloading to
another vessel during the
carriage from the port of loading
to the port of discharge stated in
the credit.
(If it does not occur between these
two ports, unloading and reloading
is not considered to be
transhipment.) ISBP681
HOUSE BL
Does a House BL acceptable?
Article 27
A bank will only accept a
clean transport document.
Clean A clean transport
transport document is one bearing
document no clause or notation
expressly declaring a
defective condition of
the goods or their
packaging.
Article 27
The word “clean” need not
appear on a transport document,
Clean even if a credit has a requirement
transport for that transport document to be
document “clean on board”.
Article 28
If a credit requires presentation of
Insurance
an insurance document such as an
Documents
insurance policy, insurance
certificate or declaration under an
open cover, UCP 600 article 28 is
applicable.
ARTICLE 28
Cover notes will not
Cover Notes be accepted.
ARTICLE 28 ✓The insurance document
must indicate the amount
of insurance coverage.
COVERAGE
✓Insurance coverage must
be in the same currency
as the credit.
When there is no indication in
the credit regarding the amount
of insurance coverage required:
MINIMUM
AMOUNT OF Minimum Coverage Required=
COVERAGE 110% of (the CIF or CIP
REQUIRED value of the goods.)
Article 31 Partial drawings or
shipments are allowed.
(even when the credit is
silent on this point.)
If a drawing or shipment by
Article 32 instalments within given
periods is stipulated in the
credit and any instalment is not
drawn or shipped within the
Instalment
period allowed for that
Schedule instalment, the credit ceases to
be available for that and any
subsequent instalment.
Article 33
A bank has no
obligation to accept a
Hours of
Presentation presentation outside of
its banking hours.
When an issuing bank states in
Loss of the reimbursement condition-
documents ‘we will reimburse the
in Transit: nominated bank upon receipt of
Can the the documents at our counter in
Issuing compliance with the terms and
bank deny conditions of the credit’, does it
honor? allow the issuing bank to deny
honor when the documents are
lost in transit?
A bank assumes no liability or
Article 36 responsibility for the consequences
arising out of the interruption of its
business by Acts of God, riots, civil
Force
commotions, insurrections, wars, acts
Majeure of terrorism, or by any strikes or
lockouts or any other causes beyond its
control.
i) Transferring bank means a nominated bank that
transfers the credit
Article 38
ii) Or, in a credit available with any bank, a bank
that is specifically authorized by the issuing bank
Eligibility of a to transfer and that transfers the credit
Transferring
Bank iii) An issuing bank may be a transferring bank.
▪ A credit may be transferred in part to
more than one second beneficiary
provided partial drawing or shipments
Transfer of are allowed.
Credit by the
Beneficiary ▪ A transferred credit cannot be
transferred at the request of the second
beneficiary to any subsequent
beneficiary.
Article 38 The first beneficiary has the right to
substitute its own invoice and Draft, if any,
Substitution of
for those of a 2nd beneficiary for an amount
invoice and draft
not in excess of that stipulated in the credit,
by the first
and upon such substitution the first
beneficiary
beneficiary can draw under the credit for
the difference, if any, between its invoice and
the invoice of a 2nd beneficiary.
Article 39 Even if a credit is not transferable,
the beneficiary has the right to
Assignment assign any proceeds to which it may
of Proceeds be or may become entitled under
the credit. But it cannot assign the
right to perform under the credit.
T h a n k s
