Mark Abrams

Mark heads up the trade finance offering at TFG where his team focuses on bringing in alternative structured finance to international trading companies.

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Contents

UCP 600 (Uniform Customs & Practice for Documentary Credits)

The Uniform Customs & Practice for Documentary Credits (UCP 600) is a set of rules agreed by the International Chamber of Commerce, which apply to finance institutions which issue Letters of Credit – financial instruments helping companies finance trade. Many banks and lenders are subject to this regulation, which aims to standardise international trade, reduce the risks of trading goods and services, and govern trade.

What does UCP 600 mean?

The UCP 600 (“Uniform Customs & Practice for Documentary Credits”) is a set of rules issued by the International Chamber of Commerce (ICC) which governs the use of Letters of Credit. The UCP are the most successful private rules for trade ever developed: the UCP 600’s 39 articles apply to 175 countries around the world, governing some $1 trillion USD of trade per year.

The UCP 600 rules do not hold legal force in any country, but apply to Letters of Credit almost anywhere in the world, and must be incorporated by express reference in them.

What is UCP 600 used for?

The UCP 600 is used to standardise the rules governing Letters of Credit to standardise transactions and benefit all parties. The rules were created by industry experts, and are mandated by the ICC Banking Commission rather than through legislation. This means that the same set of rules are applicable in the same way in nearly every country.

The first UCP was created in 1933 and has been revised periodically by the ICC. The UCP 600 is the latest version of the rules governing letters of credit; a supplement, the eUCP, was published in 2019 to govern electronic transactions.

Part 1 – What is a Letter of Credit and what are the benefits to its users?

Summary of the UCP 600

Here are a few of the key elements which make up the UCP 600:

1. Definition of key terms which are prevalent in international trade (e.g. honouring [of payments], applicants, banking days, presentation)
2. How international trade documents (Letters of Credit) can be signed and acknowledged by all parties
3. The difference between documents, goods and services (and which parties deal with these)
4. Which parts of a Letter of Credit are negotiable and non-negotiable
5. How credit works, and how payment is made
6. How banks can communicate the confirmation of goods (teletransmission)
7. Transportation of the goods, modes of transport, and who bears responsibility
8. How to deal with discrepancies, waivers and giving notice
9. The provision of original documents or electronic copies
10. Bills of Lading
11. Insurance and covering the cost of goods
12. Loss of shipping documents in transit

How many articles are in UCP 600?

The UCP 600 is made up of 39 articles. Its structure is the following: