UCP 600 and Letters of Credit | Trade Finance Global 2021 Guide

UCP600 and Letters of Credit

Trade Finance Global / Introduction to Letters of Credit | 2021 Guide / UCP 600 and Letters of Credit | Trade Finance Global 2021 Guide

UCP 600 (Uniform Customs & Practice for Documentary Credits) - What does UCP 600 mean?

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.

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:

UCP600 Infographic

NEXT >> Problems with Letters of Credit

What about the eUCP

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.

Speak to our trade finance team

Latest News- UCP 600 and Letters of Credit

19Jul

Not all plain sailing – Three Important Functions of Marine Bills of Lading

0 Comments

Closing a deal between an unknown buyer and seller is difficult. Add to this the cross-border element and the many… Read More →

19Jul

VIDEO: 21st Century Supply Chain Finance – reinventing the wheel or back to the drawing board?

0 Comments

TFG’s editor, Deepesh Patel had the pleasure of speaking with Stacey Facter from BAFT, Christian Hausherr from Deutsche Bank AG… Read More →

08Jul

Gunvor secures USD 872.5 million off balance sheet instrument facility

0 Comments

Gunvor announces the successful signing and increase of its USD 872.5 million Off Balance Sheet Instrument facility (“Facility”) after receiving… Read More →

28Jun

Breakdown of the new ICC eRules: eUCP & eURC

0 Comments

Owing to the pandemic, eUCP Version 2.0 and eURC Version 1.0 rules created by the ICC have received increased interest… Read More →

17Jun

VIDEO: Simplifying Letters of Credit – Trade Finance Week 2021

0 Comments

Eleonore Treu, Hugo Verschoren and Donald Smith, breakdown Letters of Credit and some of the prominent issues surrounding this instrument…. Read More →

17Jun

BREAKING: COVID-19 increases trade finance SME default rates in 2020, ICC Trade Register suggests

0 Comments

The ICC has published its 2019 and 2020 interim findings from its Trade Register on the performance of short-term trade… Read More →

18May

MineHub and Contour partner to drive digitisation in metals and mining industry

0 Comments

MineHub and Contour have partnered to integrate their digital supply chain and trade finance technology solutions for the global metals… Read More →

17May

TFG partners up with Surecomp on trade finance digitization webinar

0 Comments

London. Trade Finance Global (TFG) is delighted to announce it’s partnership with Surecomp’s latest free webinar: Next Gen Trade Finance… Read More →

11May

$500 million sustainability-linked borrowing base facility closed by Sucafina

0 Comments

Geneva. Sucafina SA (the “Company”), a leading sustainable Farm to Roaster coffee company, is pleased to announce that it has… Read More →

11May

Physical metals trader Traxys signs $1.3bn syndicated revolving credit facility with 26 lenders

0 Comments

Traxys Sarl, a leading global physical trader and merchant in metals and natural resources, is pleased to announce the successful… Read More →

05May

Trade digitalization milestones: a series of fortunate events

0 Comments

If you blinked and put your feet up this bank holiday weekend, you probably missed out on a few important… Read More →

29Apr

AI to help automate Bank of Africa’s documentary checking, thanks to Conpend and Finastra

0 Comments

Finastra has announced BANK OF AFRICA, a pan-African financial group, has selected Conpend’s TRADE AI app from its open innovation… Read More →

29Apr

New electronic Bill of Lading introduced by MSC using WAVE BL’S platform

0 Comments

MSC customers will be able to receive the bill of lading electronically, without any change or disruption to their day-to-day… Read More →

27Apr

Driving better customer service with SWIFT’s new guarantee message standards

0 Comments

SWIFT’s upcoming SR 2021 release is set to bring some significant changes to trade finance messaging standards – specifically those… Read More →

22Apr

HSBC and Tata Steel successfully execute a blockchain-enabled, paperless trade transaction – a global first for the steel industry

0 Comments

HSBC India and HSBC UAE have successfully executed a blockchain-enabled, live trade finance transaction between Tata Steel Ltd. (India) and… Read More →

20Apr

ITFA publishes guide to Structured Letters of Credit for emerging market trade

0 Comments

ITFA, a leading trade finance industry body, has released an in-depth guide to Structured Letters of  Credit. These are instruments… Read More →

17Apr

Can we eliminate paper from negotiable instruments and documents of title?

0 Comments

By integrating the DLPC structure into trace:original documents, the benefits of a payment undertaking supported by BAFT’s best practices can… Read More →

13Apr

Safeguards to consider when using documentary credits – Part 2

0 Comments

In this second installment of my two-part article, I endeavour to consider the documentary credit from the point of view… Read More →

07Apr

StanChart Incorporates Loan Market Association’s Green and Sustainability-linked Loan Principles into Trade Financing Framework

0 Comments

Singapore – Standard Chartered has launched a suite of sustainable trade finance solutions across Asia, Africa and the Middle East,… Read More →

31Mar

Podcast: Barclays – Can green bonds and indemnities reduce environmental impact?

0 Comments

ESG. Environmental, Social and Governance. Three words we hear more and more. But what does it actually mean? … Read More →

Back to Top