The ICC Banking Commission conducted its final meeting of 2024 virtually via Teams on 20-21 November. Four separate portions of the event open to Banking Commission members and ICC National Committee representatives took place.
The ICC Banking Commission held its 2022 Technical Meeting as a hybrid event in-person in Paris and virtually via the Zoom online platform. Three separate portions of the event open to Banking Commission members and ICC National Committee representatives took place. An ICC Official Opinions Session on 19 October was followed by an ICC Trade Register Report Session and a Plenary Session on 20 October.
Official ICC Opinions Session
One ICC draft opinion was reviewed at this session. All 27 ICC National Committees (NCs) contacting ICC in advance of the Meeting agreed with the draft opinion; 10 submitted comments about it.
ICC Draft Opinion TA.926 – This query received from ICC Pakistan dealt with availability of a credit and delayed documents. Corrected invoices were sent by the presenting bank to the issuing bank within the latest presentation period, but the documents were only delivered to the issuing bank after the latest presentation date due to delay in the courier service’s delivery of the documents for reasons beyond its control. Issuing bank refused to honour. Citing UCP600 Article 35 (Disclaimer on Transmission and Translation) and a previous ICC opinion, the presenting bank challenged the refusal but the issuing bank defended its stance. The presenting bank queried ICC whether the issuing bank is obligated to honour where corrected documents were sent within the latest presentation period and also whether Article 35 applies to the situation in question and obligates the issuing bank to honour.
ICC concluded that the issuing bank is not obligated to honour as a complying presentation should have been made to the issuing bank in a timely fashion. ICC also determined that UCP600 Article 35 was not applicable for the situation described and the issuing bank is not required to honour an otherwise complying presentation.
In discussion, ICC Banking Commission Senior Technical Advisor David Meynell mentioned that the technical advisory team would like to answer other questions relating to the query’s details, but cannot do so unless the questions are explicitly asked within the query. For instance, no question was raised within the query as regards documents being sent to the issuing bank on 12 August and a refusal notice being sent on 27 August.
Some commenters suggested that the ICC’s response to this query should be issued as an educational opinion, but the technical advisors maintained that it is strong enough to be a formal Official Opinion.
Based on the facts given in the query, some ICC National Committee representatives asked whether mention can be added to the Opinion’s Analysis that in the country of the issuing bank, Saturday is a working day. The technical advisors will consider whether an educational statement to this effect can be added to the Opinion.
While agreeing with the Opinion, other ICC National Committees expressed concern about its outcome being unfortunate as regards the reliability of an LC as a payment instrument for exporters shipping goods. The technical advisors responded that ICC rules, standards, and LC terms and conditions provide a consistent and “technical” standard for document examination in all situations, absent which practitioners would be in an even more unfortunate predicament.
Commenters asked whether some type of educational or guidance paper could be issued. The technical advisory team expressed willingness to consider a paper on place of expiry and expiry as a whole.
Opinions in 2023 – The Banking Commission’s quarterly treatment of ICC opinions will continue on 24 January, in April (date to be determined), 11 July, and in October (TBD). Deadline for ICC’s receipt of queries for the January 2023 session is 15 November 2022. The technical advisory team has already received some queries which will make for at least two substantial opinions.
Technical Advisory Briefings – To date, the Banking Commission has issued four Technical Advisory Briefings and is trying to find more effective ways to get the TABs to the trade finance industry so that others can benefit from them.
Since discrepancy rates are not improving, there is also a strong sense that not enough letter of credit users know about ISBP. In one attempt to raise the profile of available resources, the Banking Commission will be preparing a Summary of ICC Guidance Papers. The next TAB to be issued will deal with “Modifications and Exclusions under Documentary Credits subject to UCP 600”. Future TAB topics include: Issuing bank charges; Wet-ink, electronic, and PDF signatures; and Presentation via fax or email scanned attachments. ICC encourages submission of additional topics for briefing papers.
eUCP & eURC Revision Proposal – Due to the UNCITRAL Model Law on Electronic Transferrable Records (MLETR), at least two ICC National Committees are advocating for revision of the UCP600 Supplement for Electronic Presentations (eUCP Version 2.0) and URC522 Supplement for Electronic Presentation (eURC Version 1.0). Strong support was expressed for this idea in the form of small updates to bring eUCP and eURC even more in line with MLETR, especially regarding transferrable documents.
Taking the proposal a step further, one ICC NC representative suggested that eUCP should be integrated into UCP600. By doing so, the rules would need to adjust the definition of document to state that a document is paper or electronic. Under one set of rules, it would be more difficult to discard eUCP provisions and may increase use of e-credits. While combining the rules will be desirable at some stage, Meynell indicated that now is not the time.
Talk then turned to the possibility of producing a guidance paper as to how eUCP aligns with MLETR. The ICC’s Commercialization Working Group is focused on understanding and overcoming factors hindering greater use of electronic credits. Others commented that a revision of eUCP alone may not increase its use. The trade finance industry has been living on “digital islands” which has muted broader use of electronic trade documents. Consequently, standardization is needed. The ICC’s Digital Standards Initiative (DSI) has created a Standards Toolkit for Cross-Border Paperless Trade (see below) and the ICC is striving to encourage trade participants to adopt the standards.
A great deal of emphasis has been placed on the challenges of electronic bills of lading, but reliance on electronic forms of other transferrable documents such as airway bills and CMR road documents has lagged behind as well.
2022 Trade Register Report Session
Continuing an initiative commenced in 2009, the ICC announced completion of its latest Trade Register report. Trade Register steering group members Krishnan Ramadurai, Ravi Hanspal, and Richard Crecel discussed the importance of the Trade Register, its key findings, its utility to banks, and the Trade Register’s future. As the industry’s authoritative source on credit risk in trade, supply chain, and export finance, the Trade Register is intended to increase understanding of the trade finance market and its risk dynamics. The 2022 edition includes data from 21 member banks, combining for USD 21 trillion exposures and 36 million transactions. In his opening remarks, Ramadurai underscored that the Trade Register is “all about data” and emphasized the need to increase participation among banks.
While trade has proven quite resilient and goods traded in 2021 bounced back 26% from 2020, Hanspal of Boston Consulting Group (BCG) contends there should have been an even greater increase. Looking ahead to 2022 figures, BCG anticipates goods trade to grow 8.9% (from USD 21 trillion to USD 23 trillion). Adjusted for inflation, however, growth is projected to be 3.3%. Moving forward, trade finance revenues over the next ten years are expected to gradually expand, driven primarily by increased reliance on open account, but also by rising supply chain finance levels, which together exceed the continuing decline anticipated in documentary trade.
In the area of Loss Given Default (LGD) analysis, the Trade Register has adopted a new methodology and data set for calculating LGD which demonstrates even more clearly that trade finance products have low LGD. Performance guarantees have the highest reported LGD (51%), but this do not include contingent liabilities that are not converted to on-balance sheet liabilities. LGD for other trade finance products over the period 2000-2020 were 17% for Import LCs; 17% for Export LCs; 23% for Loans for Import/Export; and 27% for Supply Chain Finance. Export Finance default rates also decreased in 2021. Overall, this latest edition of the ICC Trade Register demonstrates again the low risk nature of trade, supply chain, and export finance.
Lynn Ng, ICC Banking Commission chair, opened the Technical Meeting’s Plenary Session by reflecting on the importance of ICC rules & standards as means of bringing order and trust to international banking. Ng exhorted those in attendance and the industry at large to stop setting aside rules & standards in favor of using laws as a defense not to pay and the quoting of frivolous discrepancies. Instead, she urged the banking community to be a champion for ICC rules & standards and to defend them.
Outlook for Global Trade Guest speaker Marion Jansen, Director of the Trade and Agriculture Directorate at the Organisation for Economic Co-operation and Development (OECD), addressed the outlook for global trade. Reshoring, decoupling, and other similar strategies adopted to shift away from global trade will have deleterious long-run real GDP effects in the global economy if they persist. According to WTO Secretariat projections over a 10-20 year period, GDP would drop globally by 5% and for most economies including China (-7%), EU (-4%), India (-9%), Japan (-4%), Russia (-10%), and the US (-1%). OECD will continue to defend open markets and work to reverse this trend. Jansen noted that while world merchandise trade has largely recovered, this has been marked by big structural changes such as digitalisation’s impact on demand for goods. Other trends highlighted by Jansen: China’s zero-Covid policy has contributed to its trade slowdown as exports are growing, but less than expected; Russia’s trade has fallen after its aggression against Ukraine as exports have plummeted and import values have only declined slightly due to high energy prices. Jansen also spoke of inflationary pressures, varying cost-exposure to high gas prices across industries and countries, and the US dollar surge.
DSI Legal and Standard Frameworks Pamela Mar and Hannah Nguyen of the ICC’s Digital Standards Initiative (DSI) updated on their working group’s progress. While implementation of DSI legal and standard frameworks is likely one year away, the group published a Standards Toolkit for Cross-Border Paperless Trade in March 2022 to assist supply chain participants in advancing trade digitalization to the next level. The report provides an overview of nearly 100 standards, frameworks, and initiatives in an attempt to drive adoption, identify possible gaps, and foster interoperability. The group urges participants to digest the standards and integrate them into their supply chain. The DSI is also working on an initial set of eight trade documents to harmonize their digital representations and key data elements used in: Certificates of Origin; Commercial Invoices; Warehouse Receipts; Packing Lists; Bills of Lading; Declaration Forms; Insurance Certificates; Customs Bonds. In March 2023, a Future Trade Forum will be held in Singapore with the aim of inspiring parties to accelerate action and innovate for digital trade.
Revision of the Capital Requirements Regulation (CRR) Providing their update on regulatory advocacy in the EU context as regards revision of the Capital Requirements Regulation (CRR), Bruno François and Pablo Ballesteros informed that their working group is focused primarily on two of five topics due to their impact on trade finance. One is maintaining a 20% Credit Conversion Factor instead of 50% in determining exposure at default for performance guarantees when calculating risk weighted assets for capital purposes. The other is fixed maturity. As to next steps, Parliament is somewhat complicated. Target signing was projected for early December 2022 but will likely be postponed to early 2023. Overall, the working group is optimistic and fairly positive as to a favourable outcome for trade finance.
Global Supply Chain Finance Forum Christian Hausherr, chair of the Global Supply Chain Finance Forum, identified the Forum’s completed projects since its last update in April 2022. Among them, the Forum contributed to BAFT comment letters sent to FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) in advance of new reporting requirements anticipated from FASB and IASB. In September 2022, the Forum issued a Position Paper on Drafting ICC Rules for Supply Chain Finance in which it concluded that no rules will be drafted at this time. Asked to address descriptive actions on Islamic Financing, the Forum decided that it will not describe anything pertaining to Islamic Financing as it considers Islamic Financing a regional matter that should be taken up locally. The Forum has recently completed an updated synopsis containing a tabular overview on SCF techniques that will soon be published. As to work in progress and new projects, Hausherr noted that the Forum is nearing finalization of its Bank Payment Undertaking (BPU) technique description and will be accessing its approach toward the drafting of model contracts.
Standards for Sustainable Trade and Trade Finance Ravi Hanspal of BCG then updated on the activities of the ICC Sustainable Trade Finance Working Group. In early October 2022, the Group issued a call to businesses to pilot application of a sustainability framework for trade transactions in the textile industry over an initial three-month period (November 2022 to January 2023). Another pilot program will be launched at COP27 in November 2022. The effort aims at testing the framework in a real-world setting to understand how implementation could work for key-use cases and identifying opportunities to enhance the framework for future applications. From a technology standpoint, the group also seeks to support partners engaged in building proofs of concept for digitized sustainable trade assessment.
ICC Rules Review Following a survey of the views of ICC National Committees, Groups, and Banking Commission members regarding the status of UCP600 and ISBP745, the ICC announced there is no real appetite for a UCP revision and there are no major problems with the UCP rules themselves. In commenting on UCP600, ICC Banking Commission vice chair Jun Xu said that the rules are quite clear, but are not always followed properly. Poor drafting of credits, a lack of attention to detail, and excessive details added to documents have all contributed to ill use of the rules and persistently high discrepancy rates.
As regards major comments received about ISBP745, one stated: “Like ISDGP, the ISBP should deal with all the steps of a documentary credit: application, issuance, notification, confirmation, amendment and settlement. As the ISBP 745 dated back to 2013, it is necessary to examine all ICC official opinions from 2012 and select the issues which should be transposed into the revision of ISBP.” Moved by this comment and others like it, the ICC Banking Commission will undertake a quick review over the next six months of all ICC Opinions issued since formulation of ISBP745 and evaluate the fitness of ISBP745 accordingly.
As explained by ICC Banking Commission Senior Technical Advisor David Meynell, an eight- person working group comprised of the four ICC Banking Commission Technical Advisors and four others to be selected from a pool of ICC NC nominees will look at 140 ICC Opinions and present its findings in April 2023. From its evaluation of the ICC Opinions and light review of ISBP745, the group will make recommendations to ICC National Committees as to a way forward. The group will likely consider whether to keep ISBP as is and do a separate guidance publication. If the group recommends going ahead with something more concrete in April, then it will look at the ISDGP’s structure. Meynell underscored that nothing will proceed beyond light review of ISBP745 without ICC National Committee consent.
The ICC Banking Commission conducted its final meeting of 2024 virtually via Teams on 20-21 November. Four separate portions of the event open to Banking Commission members and ICC National Committee representatives took place.
