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Santa came early this year to the International Trade and Forfaiting Association’s (ITFA) annual Christmas event.
Instead of toys and games, this year, ole Saint Nick brought something even more exciting for all the bankers and traders: a shiny new set of digital trade rules!
To learn more about this latest surprise under the tree, Trade Finance Global’s Deepesh Patel spoke with Geoff Wynne, partner and head of the Trade & Export Finance Group at Sullivan and Worcester.
URF 800 – time for an update to forfaiting rules?
In 2013, ITFA and the International Chamber of Commerce (ICC) introduced the Uniform Rules for Forfaiting, known as URF 800.
The URF 800 governed the forfaiting market, covering the discounting of the promissory notes that exporters would acquire from importers.
Forfaiting solves cash flow problems by allowing the exporter to sell their medium and long-term accounts receivable to a buyer, usually a trade finance institution or a bank, at a discounted price.
These promissory notes allow importers to delay payment on the goods they purchase for a period of time. The exporter can then sell this promissory note at a discount to a forfaiter, receiving payment now, rather than in the future.
In turn, these promissory notes can be resold on secondary markets.
In effect, the URF 800 creates the rights and obligations for parties in both the primary and secondary markets.
In 2013, when the URF 800 was first conceptualised, technology looked different than it does today.
Nearly a decade of digital advancement has created the need to reevaluate and redefine the rules governing these instruments.
Some other rules governing various aspects of the trade finance landscape were simply supplemented with a digital addendum – such as the UCP 600’s electronic counterpart, the eUCP in 2019. The UCP 600 and eUCP are the ICC’s set of rules that govern issuance and usage of Letters of Credit.
Such an approach suggests that digitalisation is considered a mere afterthought, a feature that does not reflect the needs of today’s increasingly digital–first world.
Wynne said, “ITFA took the view that, in fact, it would be better almost to revolutionise how you dealt with the transfer of a digital payment obligation by creating the uniform rules for transferable electronic payment obligations (URTEPO).”
“URF 800 will cover and continue to cover paper transactions, but as the world evolves, we’re getting to electronic digital payment obligations.
“When you want to transfer those digital payment obligations, you now have a set of rules that govern how those can be transferred.”
New rules for transferable electronic payment obligations
When conducting international commercial transactions, buyers and suppliers that move to a digital payment obligation now have a set of rules that deal with how that payment obligation can be transferred.
This follows the standard laid down by the URF 800 and reflects the fact that a commercial market will come into existence for electronic payment obligations in the same way as it has for paper payment obligations.
However, to be legally enforceable as rules, they need to be subject to a governing law.
This requires a legal system that will recognise electronic promises, electronic signatures, and the digitalisation of promissory notes and bills of exchange.
In the UK, the Electronic Trade Documents Bill – which is expected to become an act sometime in early 2023, will provide all of these legal features.
The URTEPO play a role in bringing about this wider digital ecosystem.
Wynne added, “It’s all part of facilitating a move into the digital trade world and complying with the laws as they come out that will recognise how you can create and then transfer the newly created digital promise.”
Read the rules!
The URTEPO can be used today if practitioners use electronic payment undertakings as part of ITFA’s digital negotiable instruments (DNI) initiative.
Wynne said, “As of today, we’ve published rules. Read them. Use them. Build them into your contracts so you can have shorter, simpler contracts and move us further into the digital trade world.”
You can find the published set of rules here: ITFA’s URTEPO rules.
Special mention to Paul Coles, Chair of the ITFA Market Practice Committee / HSBC Bank plc (UK), Geoffrey Wynne, Sullivan & Worcester (UK) for Drafting, and ITFA Members: Ani Bulut, Vakifbank (Turkey), Doreen Fick, ABSA Bank Limited (South Africa), Duncan Friggieri, London Forfaiting Company Ltd (Malta), Izabela Czepirska, Komgo (UK), Lorna Pillow, London Forfaiting Company Ltd (Malta), Sean Edwards, SMBC Bank International plc (UK), Tat Yeen Yap, MonetaGo (Singapore), and Yemi Paul, HSBC Bank plc (UK).