Banking & Trade Finance:
USCIB Guides Effort to Determine Standard Letter of Credit Practices
It is estimated that between 60 and 70 percent of letters of credit contain discrepancies in their first presentation,
resulting in non-payment. These are often caused by differences in personal opinions, experiences amongst practitioners, subjective approaches and questions of interpretation.
ICC is already the arbiter of banking technique and practice under UCP 500, its universally accepted rules on letters of credit. But the more than 600 queries received since publication of the 1993 revision of UCP 500 clearly indicates the need for additional guidance. Now, ICC is seeking to harmonize banking practices by formulating and articulating “international standard banking practice” in more complete detail than UCP 500 could achieve on its own.
Donald Smith (Citibank), who chairs USCIB’s Banking Committee, helped lead an ICC task force documenting international standard banking practices, as defined in UCP 500, and articulating what these practices mean to practitioners. The task force had the difficult job of documenting – but not creating – established practice, neither altering nor amending UCP 500 but rather determining the meaning of stated practices and how those practices are put into application consistent with applicable ICC opinions.
By publishing international standard banking practices, ICC hopes to increase the transparency of the process for all parties and to reduce the frequency of avoidable discrepancies. The ICC Banking Commission is expected to approve this document at its October 30 meeting.
Subcommittees focused on the groups of practices that received the most inquiries, including: alterations, certificates of origin, drafts, signing of documents, beneficiary and applicant addresses on documents, trade terms, mathematical calculations, combining documents, transport documents and insurance documents.
When questions arose as to the target audience for this publication, the committee quickly discovered that with so many technical aspects to every point under discussion, the target audience would inevitably be all users of documentary letters of credit.
Staff contact: Heather Shaw