UCP 600 (Uniform Customs & Practice for Documentary Credits)

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.

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 Letter of Credit which applies to 175 countries around the globe and constituting some $trillion USD of trade per year.

It is a set of 39articles 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 reason for the 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.

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 Trade Finance Conference, there was a special program 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 (like honor 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 (tele-transmission)

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

Hope this information will help you. Any other doubt, please ping me, I will try to respond asap.

- Sachin Gupta