UCP 600 and Letters of Credit | Trade Finance Global 2022 Guide

UCP600 and Letters of Credit

Trade Finance Global / Introduction to Letters of Credit | 2022 Guide / UCP 600 and Letters of Credit | Trade Finance Global 2022 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.

Electronic UCP (eUCP)

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

14Jun

Motivations and rationale for variation of Incoterms® rules

0 Comments

Certified Documentary Credit Specialist Ravi Jinugu explains the motivations and rationale for variation of Incoterms® rules…. Read More →

23May

As document checkers in trade head into retirement, how can banks retain their niche expertise?

0 Comments

For decades, trade document checkers at banks have mastered the crucial, time-consuming, and somewhat niche skill of manually reviewing complex… Read More →

17May

Trade Finance Global launches international trade finance series with Google

0 Comments

Trade Finance Global have partnered with Google (Market Finder) to launch a comprehensive trade finance series of guides…. Read More →

10May

Contour collaborates with TradeLens to transform trade finance workflows

0 Comments

Contour, the global digital trade finance network has today announced its collaboration with TradeLens, a blockchain-based supply chain platform that… Read More →

05May

Open sesame: trade finance in the metaverse

0 Comments

The metaverse could spell a watershed moment in human economic history. It will reinforce the concept of global human culture,… Read More →

03May

Implementing the ICC uniform rules for digital trade transactions (URDTT)

0 Comments

This article looks at the URDTT as it is applied to the first known commercial application: the eDTT Workspace…. Read More →

21Apr

Documentary Credit: Deconstructing a complex instrument

0 Comments

When searching for a definition of documentary credit, the Uniform Customs and Practice for Documentary Credits (UCP 600) is the… Read More →

16Mar

What are usance letters of credit, and why are they useful for SMEs?

0 Comments

When using an usance or deferred letter of credit, the issuing bank must make payment by a preset date. This… Read More →

14Mar

DAP, DPU and DDP Incoterms® 2020: What exactly is delivery and where does it occur?

0 Comments

The current Incoterms 2020 rules, like those in previous versions before them, are entirely devoid of any clue to assist… Read More →

14Mar

PODCAST: ‘Open by default’ – Finastra’s Iain MacLennan on partnerships, digitalisation, and helping SMEs triumph in uncertain times

0 Comments

In our latest podcast, TFG’s Deepesh Patel spoke to Finastra’s Iain MacLennan on fintech collaboration vs competition, the challenge of… Read More →

14Mar

Carriage Paid To (CPT), Carriage and Insurance Paid To (CIP): Are they compatible with Letters of Credit?

0 Comments

In CPT/CIP, the seller’s obligation is to deliver the goods to its own carrier on the agreed date or within… Read More →

11Mar

Central Bank of Egypt orders banks to quit documentary collections and replace with letters of credit

0 Comments

This article looks at the Central Bank of Egypt’s decision to stop accepting documentary collections for imported goods, and substitute… Read More →

09Mar

Do FCA transactions and Letters of Credit play nicely together?

0 Comments

Assuming we are looking at the normal type of Letters of Credit with the latest shipment date, port/airport of loading,… Read More →

04Mar

Letters of credit explained: How can they help your trading business grow, and how do you apply for one?

0 Comments

Letters of credit are one of the most commonly used trade finance instruments, and they are a great way to… Read More →

28Feb

Banks pull Russian commodity trade finance lines amid Ukraine invasion

0 Comments

Several public and private banks and financial institutions have imposed trade and commodity finance restrictions on Russia amid the escalating… Read More →

28Feb

Going nuclear: SWIFT ban to hamper Russian trade

0 Comments

The US and its Western allies have ramped up harsh economic sanctions against Russia, as it continues to attack Ukraine… Read More →

25Feb

Delivery of Full Container Loads (FCL) under Delivery at Paid (DAP)/ Delivery Duty Paid (DDP)

0 Comments

Delivery of the goods is “not unloaded” by the seller at the destination place, typically at either the CY (container… Read More →

18Feb

The role of ECAs in the global economic recovery and green transition – The view from SACE

0 Comments

In this article, SACE’s Irene Gambelli discusses the support provided by Italy’s export credit agency to SMEs during and after… Read More →

18Jan

Explained: How these 5 trade finance instruments can help your business grow in 2022

0 Comments

Letters of credit, forfaiting, factoring, export finance, and trade credit insurance: the most popular trade finance techniques companies are using… Read More →

17Jan

The case for automation – Trade finance document checking and data management

0 Comments

Each day, mountains of trade finance data are delivered to banks, requiring urgent processing to support the flow of goods… Read More →

About the Author

Deepesh Patel is Editorial Director at Trade Finance Global (TFG). In this role, Deepesh leads efforts in developing TFG’s brand, relationships and strategic direction in key markets, including the UK, US, Singapore, Dubai and Hong Kong.

Deepesh regularly chairs and speaks at international industry events with the WTO, BCR, Excred, TXF, The Economist and Reuters, as well as industry associations including ICC, FCI, ITFA and BAFT.

Deepesh is the host of the ‘Trade Finance Talks’ podcast and ‘Trade Finance Talks TV’. He is co-author of ‘Blockchain for Trade: A Reality Check’ with the ICC and the WTO, alongside other industry research.

In addition to his work at TFG, Deepesh is a Strategic Advisor for WOA, and works closely with ITFA. He also sits on the Fintech Working Group of the Standardised Trust.

Prior to TFG, Deepesh worked at Travelex where he was responsible for the cards business and the Travelex Money app in Europe, NAM, UK and Brazil. Deepesh is Chair of Governors and co-opted LA Governor of the Wyvern Federation, which has responsibility for 5 primary schools in South London.

Back to Top