Prepare for the UCP 600
UCP 600 in effect from 1 July 2007
What is changed in UCP 600?
When comparing UCP 500 with UCP 600 you will note that every single article has been redrafted, and perhaps that is the most important change from a corporate perspective. A primary focus has been to make the language more simple and clear.
The responsibilities of the parties to the documentary credit transaction (mainly banks) have become much more transparent. One example to that effect is the article covering the advising bank which says (excerpts):
- By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.
Other changes include:
- A section of Definitions and Interpretations has been introduced in the UCP 600.
This includes definitions of “Advising bank”, “Applicant”, “Banking day”, “Beneficiary”, “Complying presentation”, “Confirmation”, “Confirming bank”, “Credit”, “Honour”, “Issuing bank”, “Negotiation”, “Nominated bank”, “Presentation”, “Presenter”.
In addition to that the following are now interpreted: “singular/plural”, “irrevocable”, “signatures”, “legalizations”, “Branches of a bank”, “Terms describing issuer of a document”, “Prompt etc”, “on or about”, “to", "until", "till", “from”, “between”, “before”, “from”, "after“, "first half“, "second half“, "beginning", "middle“, "end“.
Many of those were of course defined/interpreted in the UCP 500 as well, but for the first time they are placed together for a far better overview.
One new concept introduced is “Honour” – which is defined as:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment.
c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is available by acceptance. - The standard for examining documents has also been in focus. This is reflected in article 14, and here is a few examples from that:
Banks now only have 5 banking days to accept or refuse documents. This replaces the “Reasonable time not exceeding 7 banking days”.
The period for presentation (usually 21 days) only applies to original transport documents. This means that if only a copy or no transport document is required by the credit, and a period for presentation is requested, then the credit should expressly state that the document should be presented within a certain period of time from a defined moment or event.
Addresses of beneficiaries and applicants need no longer be as mentioned in the documentary credit. They must however be within the same country.
Contact details (Like phone and fax numbers) may be disregarded – and if stated they need not be as in the credit.
An exception to this is where the address and the contact details are used in transport documents as part of the consignee or notify party. In that case they must be as stated in the credit. - The transport articles have been redrafted under advice of a group of “transport experts”. This has resulted in the following changes (examples):
The requirement that a bill of lading must show that goods are shipped on board a named vessel, has been made much simpler which will hopefully lead to less confusion.
The option that a “Multimodal transport operator” can sign a multimodal transport document has been removed. The background is that this option was not utilized.
It is now acceptable that a “Charterer” (or a named agent on behalf of the charterer) can sign a Charter Party Bill of Lading.
If an agent signs on behalf of a “Master” on a Charter Party Bill of Lading then the name of the master need not appear from the document. - For the insurance documents the following has been changed:
“Proxies” can now sign on behalf of the insurance company or underwriter.
Percentage to be covered will be understood as a “minimum” coverage required.
The document may contain reference to any “exclusion clause”.
The risks must be covered at least between the shipment points stipulated in the credit. - For Transferable credits the Transferring bank may send second beneficiaries invoice/draft if
- first beneficiary fails to present his own invoice or
- first beneficiary creates discrepancies that did not exist in second beneficiaries presentation.
In addition to that it is now made clear that second beneficiaries documents must be presented to the transferring bank, i.e. not directly to the issuing bank.
Other relevant information
UCP 600 came in force 1 July 2007. Documentary credits issued after that date will be subject to those rules. It is however so that the credit must state which rules they are subject to, so in principle credits can be issued subject to UCP 500 even after 1 July 2007. In any case Nordea will only issue credits subject to UCP 600 from now. In that respect it should also be mentioned that documentary credits issued prior to 1 July 2007 subject to UCP 500 will continue to be subject to UCP 500 – so there will be a period of time where documentary credits under both sets of rules are active.
In addition to the UCP 600 the ICC will issue two other publications prior to 1 July 2007:
- One is a revised version of “International Standard Banking Practice (ISBP) for the examination of documents under documentary credits”.
The sole purpose of the revision is to ensure that the content is in line with UCP 600. - Another ICC publication is the “ICC Commentary to UCP 600” explaining and commenting on each of the articles in UCP 600.
Please contact your local Nordea Trade Finance office for specific information or questions regarding the UCP 600.
| Kim Christensen is TF Business & Product Specialist placed in Denmark |
Fredrik Lundberg is TF Senior Advisor placed in Stockholm |
Both are members of the ICC Commission on Banking Technique and Practice.
