UCP 600

On 1 July this year, new Uniform Customs and Practice for Documentary Credits (UCP) 600 will come into force, replacing the existing UCP 500 rules. Below is an outline of how the changes will affect businesses.

What is UCP?

UCP is the internationally recognised set of rules governing the use of letters of credit also known as documentary credits. UCP is written into virtually every letter of credit and accepted worldwide.

Why do the UCP rules change?

The UCP rules were first published in 1933, and revised by the ICC in 1951, 1962, 1974, 1983 and 1993.

This latest revision of the rules is the first to take place since 1993, and represents more than three years of work by the International Chamber of Commerce (ICC).

The ICC claims that UCP 600 will be ‘modern rules for a changing world’.

Who will the changes affect?

The changes from UCP 500 will have a considerable effect on all those involved in trading internationally who use letters of credit to arrange their payments. Exporters, importers, bankers, lawyers and transporters of goods will all need to refer to the new rules come July.

What are the changes?

The ICC summarises the changes as:

• A leaner set of rules, with a reduction in the number of articles from 49 to 39
• A new section of ‘definitions’, containing terms such as ‘honour’ and ‘negotiation’
• The replacement of the phrase ‘reasonable time’ for acceptance or refusal of documents
• A new provision concerning addresses of the beneficiary and the applicant
• An expanded discussion of ‘original documents’
• Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

What are the new definitions?

The new definitions are an attempt to avoid the various interpretations made by individual banks and/or their employees to delay or prevent acceptance of documents as well as clarify some terms.

The definitions include:

Confirmation: means a definite undertaking of the confirming bank, in addition to that of the issuing back, to honour or negotiate a complying presentation.

Honour:

• to pay at sight if the credit is available by sight payment
• 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

Negotiation: means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/ or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

What is included in the expanded discussion of original documents?

Article 17, entitled ‘Original Documents and Copies’ includes a new clause, which states that ‘at least one original of each document stipulated in the credit must be presented’.

What other key changes are there?

Many of the articles have simply been reworded or amended to make the meaning clearer. Some of the articles from UCP 500 have been condensed while some have had extra clauses added to clarify certain points.

One example is Article 7, entitled ‘Issuing Bank Undertaking’. This has a new clause (b), which states ‘An issuing bank is irrevocably bound to honour as of the time is issues the credit’.

In general, UCP600 is easier to read than UCP500. It is more direct and also addresses a number of issues that have been causing problems over the last few years.

How can I find out more?

The Chambers of Commerce across the region are holding workshops on UCP 600 in the upcoming months in advance of the changes coming into force. These include:
Bradford Chamber, 3 April
Hull Chamber, 4 April
Leeds Chamber, 12 June