Industry Standards for Letters of Credit, Guarantees and Open Account André Casterman Head of Banking, Trade and Supply Chain – SWIFT

Co-Chair "Bank Payment Obligation" Project – International Chamber of Commerce La Hulpe, 1 December 2011

Trends

Digitisation

Innovation

Collaboration

Regulation

Industry Standards for LCs, Guarantees and Open Account 2

Industry standards Developed by international standardisation bodies

Industry Standards are industry owned and technology neutral

• Trade Finance instruments

• MT standards • ISO 20022 registration authority • ISO 9362 BIC registration authority, … • ISO 20022 Financial Industry standards • ISO 9362 Business Identifier Code (BIC), …

3 Industry Standards for LCs, Guarantees and Open Account

Issues with proprietary formats and rulebooks

Avoid proprietary solutions and vendor lock-in

• Some Trade Finance vendors have been trying to impose their proprietary formats in the C2B trade finance space; such vendors intermediate the corporate-to-bank contractual relationship by imposing their own rulebooks

• Corporates and banks adopting such formats are locked in into the vendor-specific platforms; this increases operational risks for users as software solutions should be independent of each other and interoperate using Industry Standards

• Global Trade banks have resisted adopting those proprietary vendor solutions as each implementation generates huge implementation and running costs (software, legal, operational, technical); usually most fees are charged to the banks whereas the main value proposition targets the corporates

• Due to customer pressure, some banks have been forced to implement those formats and suffer from high vendor-specific fees and usage costs

• The benefits of multi-banking are therefore limited and never fully achieved neither by corporates, nor by banks.

Industry Standards for LCs, Guarantees and Open Account 4

Best Practices for banks and corporates

Industry Standards for LCs, Guarantees and Open Account 5

Industry Standards enable banks and corporates to increase efficiency when respecting all of the above best practices

• ICC Banking Commission's rules Rules • SWIFT's MTs for LCs and Guarantees • ISO 20022 for open account Messages • Business Identifier Code (BIC or ISO

9362) for banks and corporates Identity • SWIFT for bank-to-bank (FIN or TSU) • SWIFT or Internet for corporate-to-bank Channel • SWIFTReady vendors • In-house development Solutions

MT7xx

FIN MT798

FileAct

MT798 Documents

FIN MT7xx

Buyer’s bank(s)

Seller Seller’s bank(s)

Buyer

1 2 3

Industry Standards for LCs and Guarantees

Industry Standards for LCs, Guarantees and Open Account

MT798 Documents

6

1

SWIFT's MT7xx are industry owned, technology neutral standards in support of ICC's UCP600

and URDG758 rules

D I S C R E P A N C Y A D V I C E R E S P O N S E

Corporate-to-Bank

Import Documentary Credits

Bank-to-Corporate IM

POR

T D

OC

UM

ENTA

RY C

RED

ITS

A M E N D M E N T N O T I F I C A T I O N

A M E N D M E N T A C C E P T A N C E N O T I F I C A T I O N

D I S C R E P A N C Y A D V I C E

C O M P L I A N C E A D V I C E N O T I F I C A T I O N

D I S C H A R G E A D V I C E N O T I F I C A T I O N

R E F U S A L A D V I C E N O T I F I C A T I O N

P A Y M E N T A D V I C E N O T I F I C A T I O N

I M P O R T P A Y M E N T S E T T L E M E N T A D V I C E

Applicant

A P P L I C A T I O N MT 798<770> MT 798<700> MT 798<701>

I S S U A N C E N O T I F I C A T I O N MT 798<771> MT 798<700> MT 798<701>

A M E N D M E N T R E Q U E S T MT 798<772> MT 798<707>

MT 798<773> MT 798<707>

MT 798<736>

MT 798<748> MT 798<750>

MT 798<753> MT 798<754>

MT 798<731> MT 798<732>

MT 798<749>

MT 798<733> MT 798<734>

MT 798<755> MT 798<756>

MT 798<757>

Bank

7 Industry Standards for LCs, Guarantees and Open Account

Corporate-to-Bank

Export Documentary Credits

Bank-to-Corporate EX

POR

T D

OC

UM

ENTA

RY C

RED

ITS

A M E N D M E N T A D V I C E

A M E N D M E N T A C C E P T / R E F U S A L A D V I C E

A U T H O R I S A T I ON A D V I C E N O T I F I CA T I O N

C O M P L I A N C E A D V I C E N O T I F I C A T I O N

D I S C H A R G E A D V I C E N O T I F I C A T I O N

R E F U S A L A D V I C E N O T I F I C A T I O N

P A Y M E N T A D V I C E N O T I F I C A T I O N

T R A N S F E R R E Q U E S T

T R A N S F E R A D V I C E

E X P O R T P A Y M E N T S E T T L E M E N T A D V I C E

Beneficiary

C R E D I T A D V I C E MT 798<774> MT 798<700> MT 798<701>

MT 798<776> MT 798<707>

MT 798<735>

T H I R D B A N K A D V I C E MT 798<780> MT 798<710> MT 798<711>

P R E S E N T A T I O N R E S P O N S E MT 798<737>

MT 798<751> MT 798<752>

MT 798<753> MT 798<754>

MT 798<731> MT 798<732>

MT 798<733> MT 798<734>

MT 798<755> MT 798<756>

MT 798<722>

MT 798<758>

MT 798<782> MT 798<720> MT 798<721>

Bank

8 Industry Standards for LCs, Guarantees and Open Account

Corporate-to-Bank

Bank-to-Corporate

Applicant

GU

AR

AN

TEES

/ ST

AN

DB

Y LE

TTER

S O

F C

RED

IT

E X T E N D / P A Y R E S P O N S E

A P P L I C A T I O N

A M E N D M E N T N O T I F I C A T I O N

E X T E N D / P A Y Q U E R Y

C L A I M N O T I F I C A T I O N

C L A I M / C H A R G E S S E T T L E M E N T

R E D U C T I O N / R E L E A S E A D V I C E

N O T I F I C A T I O N

A M E N D M E N T R E Q U E S T

R E D U C T I O N / R E L E A S E R E Q U E S T

MT 798<761 or 784 > MT 798<760>

MT 798<762 or 785 > MT 798<760>

MT 798<763 or 786 > MT 798<767>

MT 798<764 or 787 > MT 798<767>

MT 798<777>

MT 798<778>

MT 798<779>

MT 798<781>

MT 798<783>

MT 798<766 > MT 798<769>

Bank Guarantees/Standby Letters of Credit

9 Industry Standards for LCs, Guarantees and Open Account

Corporate-to-Bank

Bank-to-Corporate G

UA

RA

NTE

ES /

STA

ND

BY

LETT

ERS

OF

CR

EDIT

con

t.

Beneficiary

A D V I C E

A M E N D M E N T A D V I C E

P A Y M E N T C L A I M

C L A I M A C K N O W L E D G E M E N T

MT 798<745 or 746 > MT 798<760>

MT 798<743 or 744 > MT 798<767>

MT 798<712>

MT 798<714>

Bank Guarantees/Standby Letters of Credit

10 Industry Standards for LCs, Guarantees and Open Account

23 banks adopting SWIFT's MT798 12 from the top20 Trade banks

11 Industry Standards for LCs, Guarantees and Open Account

12

Preparing the future for Guarantee & Standby LC using ISO 20022

• Demand Guarantees & Standby LCs

• Identify all end-to-end business flows – Corporate to bank – Bank to bank – Bank to corporate

• Agree on business content – Create new ISO 20022 XML messages – Define fields

• Validate

Industry Standards for LCs, Guarantees and Open Account

Drivers for ISO 20022 for Guarantees & Standby LCs • Evolution of the MT798 to the XML syntax • Enrich the functionality and granularity • Increased dematerialisation of trade documents • Leverage technology advancements • The release of URDG 758 • The creation of templates under ISP 98 • The desire to create efficiency and better STP • Complete the full end-to-end flows • Corporates want integrated dematerialised flows

combining structured data with attachments and supporting local language character sets

13 Industry Standards for LCs, Guarantees and Open Account

Industry Standards for supply chain finance

Industry Standards for LCs, Guarantees and Open Account 14

2

Any channel / any format / any solution

Trade Txn Matching Scheme

Any channel / any format / any solution

Seller Buyer

1 2 3

Bank Payment

Obligation Pub

lic D

omai

n C

omm

erci

al

• SWIFT's Trade Services Utility (TSU)

• Any inter-bank scheme based on ISO 20022 messages & rules

• Bank portal • SWIFT's SCORE • Paper

• Bank portal • SWIFT's SCORE • Paper

The Bank Payment Obligation (BPO)

A BPO is an irrevocable undertaking given by a bank to another bank that payment will be made on a specified date after successful electronic matching of data according to an industry-wide set of ICC rules. Therefore, a BPO offers:

• An assurance of payment • Risk mitigation for all parties • Possible use as collateral for finance

Industry Standards for LCs, Guarantees and Open Account

An alternative ICC instrument for trade settlement 15

18 banks adopting BPO in 2011 7 from the top20 Trade banks

16 Industry Standards for LCs, Guarantees and Open Account

The leading Trade Finance vendors are accredited by SWIFT SWIFTReady

Trade Finance

• Bank-to-bank • Corporate-to-bank • LCs and

Guarantees

SWIFTReady for Corporates – Trade Finance

• Corporate-to-bank • LCs and Guarantees

SWIFTReady Trade Services Utility

• ISO 20022 TSMT messages

• Bank Payment Obligation rules

• Open Account

Vendor Trade Finance Solution

China Systems

Eximbills

CSI BankTrade

Misys Trade Innovation Plus

MIT CREDOC

Sopra Evolan IB

Surecomp DOKA 5, IMEX

Vendor Trade Finance Solution

ACI Open Account Manager

China Systems

Eximbills Enterprise

CSI OpenTrade

Misys Misys Trade Portal

Bank

Vendor Trade Finance Solution

GTC GlobalTrade Corporate

Misys Misys Trade Portal

Pinnacle Solutions Incorporated (PSI)

Synergy Trade Services (TS) Multi-bank Corporate Site (Conformance Statement) 17 Industry Standards for LCs, Guarantees and Open Account

Corp Bank

More info

• Join our "Supply Chain on SWIFT" group on:

• Join our frequent Webinars

• Email us at supplychain@swift.com

Industry Standards for LCs, Guarantees and Open Account 18