The UCP 600 (“Uniform Customs & Practice for Documentary Credits”) is the official publication which is issued by the International Chamber of Commerce (ICC). It is a set of 39 articles  on issuing and using Letters of Credit, which applies to 175 countries around the world, constituting some $1tn USD of trade per year.

What’s the purpose of UCP 600?

The UCP 600 replaced the UCP 500 on the 1st July 2007. It was brought about to standardise a set of rules aiming to benefit all parties during a trade finance transaction. UCP 600 was created by industry experts, and mandated by the Banking Commission, rather than through legislation. The first UCP was created in 1933 and has been revised by the ICC up to the point of the UCP 600.

Is the UCP 600 legally binding?

The UCP 600 rules are voluntarily incorporated into contracts and have to be specifically outlined in trade finance contracts in order to apply. They also allow flexibility for the international parties involved.

An accompaniment to the UCP 600 is the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP), ICC Publication 745. It assists with understanding whether a document complies with the terms of Letters of Credit.

Credits that are issued and governed by UCP 600 will be interpreted in line with the entire set of 39 articles contained in UCP 600. However, exceptions to the rules can be made by express modification or exclusion.

The UCP 600 are the most successful rules ever developed in relation to trade and most Letters of Credit are subject to them. At the recent ICC UK Winter Trade Finance Conference, there was a special programme which addressed the UCP 600. This looked at recent developments in industry practice and ICC policy, as well as a review of the latest Banking Commission Opinions.

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

Will the UCP 600 be revised?

At Trade Finance Global, many people ask whether the UCP 600 will be revised. The UCP 600 is a set of rules developed by the International Chamber of Commerce on the issuance and governance of Letters of Credit, which account for a significant proportion of global trade finance transactions.

The UCP 600 has taken over 3 years to develop

When looking at the UCP 600, it is important to look at the market environment and general notes about the current guidelines. It is general consensus that UCP 600 will not be revised any time soon. Some of the reasons for this and general notes about the UCP are outlined below:

• there was a 14 year gap between UCP 500 and UCP 600;
• The consulting group was established with 41 members from 26 countries, who held meetings on over 15 occasions
• Over 5000 comments were received and reviewed once the first draft of the UCP 600 came about, being unanimously approved in October 2006
• UCP 600 is doing relatively well and works most of the time, there have been a low number of disputes, usually centred around some ambiguous wording that could not be agreed when the UCP 600 was drafted;

The big question is, if it were to be revised,

• who would draft it and who in the market has the expertise to do so;
• revision would take time and be at a high cost;
• there is a lot of regulatory uncertainty in the market and policy would need to be drafted before any advancement of the documents;
• it is unknown what will happen to various sanctions that are operating in the market;
• the ISBP is used to clarify points and there are further opinions that do the same; and
• the system will never be perfect as there will always need to be compromise – it covers over 150 trading countries and needs to reflect the commercial and legal realities.

Electronic UCP (eUCP)

In 2019, the International Chamber of Commerce also released an updated supplement for the electronic rules (eRules) of the Uniform Customs & Practice for Documentary Credits. TFG covered the key changes for V2.0 of the eUCP rules, which can be found here.

Summary of the Key Articles in the ICC UCP 600

Articles 1 – 5 – General Provisions and Definitions

Articles 6 – 13 – Liabilities and Responsibilities

Articles 14 –  Examination of Documents

Article 15 – 17 –  Examination of Documents

Articles 18 – 28 – Documents

Articles 29 – 33 – Miscellaneous Provisions

Articles 34 – 37 – Disclaimers

Articles 38 – 39 – Transferable Credit & Assignment

What’s the difference between UCP 600 and UCP 500?

The UCP 500, was revised in 1993, a process which reviewed and overhauled opinions, decisions, URR525, ISP98 and eUCP.

Seven key articles were amended.

In comparison to UCP 500,

• New terminology added, concepts & wording introduced
• Reorganization of the rules
• Substantive & cosmetic changes
• Improved clarity, yet created new ambiguity

Download our UCP600 Infographic (Free UCP PDF 2020)

UCP600 PDF Infographic:

NEXT >> Problems with Letters of Credit

ICC Update on UCP

Recently, the ICC updated eUCP 600 rules (eRules), to accelerate the digitilisation of trade finance. Trade Finance Global have published the updates on the eRules for ‘eUCP 600’, which are supplementary rules to these UCP 600 rules. Find out more here.