sibos icc ur bpo briefing
DESCRIPTION
Sibos ICC briefing on Supply Chain Finance and the new Uniform Rules for Bank Paymennt ObligationTRANSCRIPT
ICC briefing on supply chain finance
and UR BPO
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Sibos Osaka 29 October 2012
Welcome!
• To update the Trade bankers on the progress on UR BPO rules
• To share our next steps in view of formal adoption of UR BPO rules in April 2013
• To suggest your joining this industry innovation and increase corporate awareness
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Speakers
• Kah Chye Tan, Global Head of Trade and Working Capital, Barclays Corporate and Chair ICC Banking Commission
• Dan Taylor, Managing Director, J.P.Morgan and Vice-Chair ICC Banking Commission
• Daniel Schmand, Head of Cash Management and Trade Finance EMEA, Deutsche Bank and Vice-Chair ICC Banking Commission
• David Vermylen, Global Credit Manager Chemicals, BP
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Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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Cooperation Sibos Toronto
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Both the ICC and SWIFT believe that by
working together and leveraging their
respective positions across the trade finance
community, the BPO will have an important
role to play in supporting the development of
international trade in the 21st century in
addressing cost pressures in the face of
increased automation and changes in the
regulatory environment.
Kah-Chye TAN
Chair
ICC Banking Commission
Gottfried LEIBBRANDT
CEO SWIFT
Roles of ICC and SWIFT
To help banks provide innovative trade and supply chain services that enable their corporate customers to:
– reduce risk – enhance process
efficiency – improve liquidity
management. More than 9,000 financial institutions in 209 countries.
The ICC Banking Commission is a leading global rule-making body for the banking industry, producing universally accepted rules and guidelines for international banking practice, notably letters of credit, demand guarantees and bank-to-bank reimbursement. Over 500 members in 85 countries.
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Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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The current instruments
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Seller Buyer
LC Advising Bank
LC Issuing Bank
Docum
ents
Contract
Documents
Doc
umen
ts
Advi
ce
Application
Issuance
Payment
Letter of Credit
Bank risk / financing services based on paper document
processing
Seller Buyer
Seller’s Bank
Buyer’s Bank
Contract
Payment
Open Account
Documents
Bank services limited to payment processing.
If any risk, Credit Insurance or Payment Guarantee is added
Continuous shift
The opportunity for banks
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Seller Buyer
Seller’s Bank
Buyer’s Bank
Contract
Payment
Open Account
Documents
Bank services limited to payment processing
Seller Buyer
Recipient Bank
Obligor Bank
Contract
Documents
Payment
Bank Payment
Obligation
Bank risk / financing services based on electronic trade data
Data
Dat
a
Dat
a
Bank-assisted open account
The BPO enables bank-assisted Open Account trade
BPO is an alternative instrument
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Seller Buyer
Buyers' Bank
Seller's Bank
Purchase Order Transport docs Certificates Invoices
Transaction data facilitating the provision of risk & financing services
ICC SWIFT
Established B2B
practices
Irrevocable and conditional inter-bank payment
obligation (BPO)
A legally binding rulebook owned by the ICC and based on
ISO 20022 standards
An industry-wide messaging and matching platform that implements
the BPO in a multi-bank way
BPO is a new payment term in the ICC Int’l Sales Model
Contract
BPO LC
Dat
a/Pa
per
Dat
a
The Bank Payment Obligation
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 rules. Therefore, a BPO offers:
• An assurance of payment • Risk mitigation for all parties • Possible use as collateral for finance
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An alternative instrument for trade settlement
Industry standards
• Trade Finance instruments (UCP600, URDG758, URC 522, URBPO, …)
• MT standards (for L/Cs, Demand Guarantees, Collections)
• ISO 20022 standards (for BPO) • ISO 9362 Business Identifier Code (BIC) • ISO Country codes, Currency codes, …
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Industry standards are industry-owned and technology-neutral. They coherently address legal and operational aspects.
Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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Organisational structure BPO Working Group
Co-chairs: ICC and SWIFT
Legal Drafting
Drafting Group Chair: ICC
UR BPO rules
Consultative Group Co-chairs:
CITI & FirstRand
Reviews of Draft UR BPO rules
Education
Education Group Co-chairs:
JPM and Vale
Bank and Corporate case
studies
Collaterals and Training
Accounting and Regulatory Treatment
Commercialisation
Commercialisation Group
Coordination: SWIFT
Bank-to-bank tests
Corporate on-boarding
Consultancy
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Group
Activities
Deliverables
ICC UR BPO Rules Timeline
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DATE MILESTONE
March 2012 First review by ICC BPO Consulting Group
End March 2012 Presentation to ICC Banking Commission in Doha
May 2012 Second review by ICC BPO Consulting Group
May 2012 Drafting Group review comments from Consulting Group
May 2012 Send draft version to National Committees
August 2012 Review of comments from ICC National Committees
September 2012 Drafting Group to issue revised version
November 2012 Full presentation of ICC UR BPO Rules to ICC Banking Commission
December 2012 Review of additional comments from ICC National Committees
January 2013 Drafting Group distribute proposed final version of ICC UR BPO Rules to National Committees
April 2013 Targeted approval at ICC Banking Commission
Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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BPO Accounting Treatment Party Transaction flow Liability Accounting
(All) Obligor Bank(s) Confirming obligor role Contingent • Off Balance sheet
• Unfunded
Recipient Bank In case of “silent
confirmation” Contingent • Off Balance Sheet
• Unfunded
• Obligor Bank • Recipient Bank
(in case of “silent confirmation”)
Payment at sight after Dataset Match Report
End of liability End of liability
• Obligor Bank • Recipient Bank
(in case of “silent confirmation”)
Deferred Payment Undertaking after
Dataset Match Report
Direct • On Balance Sheet • Unfunded
• Obligor Bank • Recipient Bank
(in case of “silent confirmation”)
Discount of Deferred Payment Undertaking
Direct • On Balance Sheet • Funded
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BPO Capital Treatment • Many arguments in favour of similar treatment as
Commercial Letters of Credit – Contingent, self-liquidating instruments – Low losses (see ICC Trade Finance Default Register) – A BPO should not be treated as a (performance related) Guarantee or
Stand-By Letter of Credit as a Guarantee is not a payment instrument and BPO is a self-liquidating payment instrument
– A BPO should not be treated as a lending instrument as BPO is contingent and (initially) unfunded
– Capital treatment similar for the Obligor Bank(s) and the Recipient Bank (in case of “silent confirmation”)
Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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Key benefits for the seller
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Cash flow
Optimization
Get paid on time Improve DSO and DIO
Mitigate payment default risk of OA Improve liquidity forecasts
Improve discrepancy management Reduce processing effort Syndicate payment risk
Supply Chain
Finance
Pre-/post shipment finance Alternative to credit insurance Extension of reverse factoring
Key benefits for the buyer
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Cash flow optimization
Control payment time execution
Optimize use of credit lines Pay key suppliers on time
Reduce administrative costs Reduce investigations & disputes
Outsource payables Processing
Supply Chain Finance
Extend payment terms (DPO) Negotiate commercial terms Reduce supplier default risk
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Easier access to risk / financing services
E-invoicing Approved Payables Financing
Payment processing
Today's data-driven invoice-based processing and financing services
Factoring
Current “e” services
Ordering of goods
Production of goods
Shipment of goods
Issuance of the invoice
Payment & cash management
Invoice Transport Documents
Approved Invoice Certificates Payment
Initiation
Payment assurance
Pre-shipment finance
Post-shipment finance
Tomorrow's data-driven risk mitigation and financing services using the Purchase Order
New “e” services
Timely Payment
Purchase Order
Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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BP Petrochemicals
• 2010 Revenues of USD 14 billion
• Revenue created for approx. 50% in Asia
• Trade account receivables of EUR 1.4 billion (consolidated receivables only)
• More than 600 clients worldwide
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Key challenges
• Trade account receivables of EUR 1.4 billion (consolidated receivables only) • Competitive commodities market requires a secure and cheaper alternative to
L/Cs • About 50% of exposure on secured terms – typically interacting with around
50 banks • High processing and confirming costs (0,8% of transaction value in average) • LCs process limits commercial possibilities and reduces the competitiveness
of the offering • LCs administration weakens compliance under certain conditions • Reduced need for specialized LC training and specialized LC vetting
personnel
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Long, costly and cumbersome doc. credit process
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Purchase Order
L/C issuance and acceptance
Production Shipment Delivery
Fina
ncia
l Sup
ply
Cha
in
Phy
sica
l Sup
ply
Cha
in
Documents presentation and compliance verification
PO BOL Invoice
…..or storage at port of destination Delayed delivery
Documentation standards require buyer to send L/C much earlier than
the anticipated shipment date
… or risk due to a waiver
Re-route ships in case of refusal of
documents
L/C issuance and acceptance
Documents presentation and compliance verification
Documents presentation and compliance verification
Trade Post-Trade Pre-settlement Settlement T T+1 T+10 S > T+20
Buyer cannot free its credit limits
Payment
BPO based on transport & invoice data
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Seller Buyer
BPO Obligor Bank
BPO Recipient
Bank
Carriers Delivery of goods
1 Purchase order
Transport and invoice data
5 6 Transport and invoice data (match report)
7 Advise payment is due on agreed date 10 Transfer funds at maturity
2 Request BPO based on PO
3 Inform of BPO establishment
Use minimum fields
4 Shipment
Documents sent directly to the client
Shipping documents (BOL) immediately 8
Trade Services
Utility (TSU)
Established baseline BPO is
due
Trade Services
Utility (TSU)
9 Invoice and certificates (authenticated and legalized)
BPO establishment and obligation
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Buyer and seller agree on the BPO terms and the Buyer sends a purchase order to the seller
Buyer provides the minimum data from the PO and the BPO conditions to the Obligor bank
Seller confirms the data from the PO and the BPO conditions to the Recipient bank
If the submitted data matches on the TSU, the “baseline” is established. Buyer and Seller receive the matching report from their banks
Seller ships the goods to the port of destination
Seller provides the shipment and invoice data to its bank, which submits it to TSU for matching
Buyer receives a match report from its bank and is invited to accept mismatches, if any
Seller’s bank informs of the successful dataset match to the Seller
BPO is irrevocable but conditional (subject to the electronic matching of agreed datasets)
Seller sends the bill of lading immediately by courier to the Buyer (eventually with a copy to the Buyer) Seller sends the invoice and required certificates (authenticated and legalized as required) to the buyer so that he can receive the goods
On the due date, the Obligor bank debits the proceeds from Buyer’s account and remits the funds to the Recipient bank. The Recipient bank credits the seller’s account
BPO becomes operative and due according to the agreed payment terms
Bas
elin
e es
tabl
ishm
ent
Mat
chin
g
Settl
emen
t
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1
8
6
4
2
3
5
7
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Benefits
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• Get paid on time and avoid judicial proceeding • Easier access to banks to secure transactions • Easy to exercise tool for liquidity • Possibility to spread the risk with multiple obligors • Free up banking lines
Risk mitigation
• Leaner operations and improve speed of handling • Reduce the risk of discrepancies, limit to relevant trade information only • Quicker resolution of deviations (amendments) • Remove costs due to confirmation, vetting and presentation
Operational efficiency
• Reduce complexity – removal of paper trail • Reduce cost for customers due to vetting and presentation • Quicker assurance for buyers in terms of security of supply • Improve customer offer by allowing for flexible options
Enhance competitiveness
Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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The leading and trusted authority for banking and trade finance
• Global standard setter and policy forum • Commercially oriented value proposition • Think tank for research and intelligence
ICC Banking Commission
5 Major Initiatives Undertaken 1. Human capital
• ICC, National Committees, Banking Commission • Banking: Advisory Board, Executive Committee, Secretariat • Roles and responsibilities
2. New products • Rule-drafting: Forfaiting, supply chain financing, ISBP • Market intelligence: ICC Surveys, ICC Register, etc.
3. Regulatory policy engagement • Leading voice for Basel III, KYC, sanctions, etc. • Basel, WTO, IMF, UN, MDBs, ECAs…
4. New sources of revenue and outreach • ICC Banking Academy • Regional Banking Commissions
5. Strengthen the value proposition
ICC BC Business Plan 2012-2015
The ICC Banking Commission has structured its strategy around the following service lines:
AREA 1: Traditional Trade Services
AREA 2: Open Account & Supply Chain Financing
AREA 3: Global Regulatory
AREA 4: Legal & Compliance
AREA 5: Special projects involving multilaterals, export
credit agencies and insurance, focused on emerging markets
Agenda
• Introduction • New Uniform Rules for Bank Payment Obligation • The ICC BPO Project Deliverables and Timeline • The accounting and capital treatment of BPO • The corporate need for new rules for open account trade • A BPO Corporate Case study: BP Chemicals - Octal • The ICC Banking Commission team and projects • Conclusion
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Next steps for you
• Join the BPO Community (44 banks today)
• Test BPO with your correspondent banks (TSU)
• Engage with corporate clients
• Develop your business case and readiness plan
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Get ready now as ICC will launch UR BPO in Q2 2013
4 banks are live on BPO Banks with live transactions + 1 corporate case study
Live Banks Region Intra / Inter-bank transations
Locations of live corporate supply chains
Corporate case study
Bank of China APAC Intra in China Inter
CN Ito Yokado’s Chinese suppliers
Bank of Tokyo Mitsubishi UFJ
APAC Intra Inter
JP, HK, CN, TW Ito Yokado
Korea Exchange Bank
APAC Inter KR Automotive industry (in development)
Standard Chartered Bank
EMEA Intra BE, OM BP Chemicals Octal
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12 banks are ready for live use Banks ready to go live but with no live BPO transactions yet
• Bank al Etihad (Jordan) • Barclays • Byblos Bank (Lebanon) • Commercial Bank of Dubai • Commerzbank • Deutsche Bank • Hua Nan Bank (Taiwan) • J.P. Morgan • Kasikornbank (Thailand) • Siam Commercial Bank (Thailand) • Standard Bank of South Africa • Sumitomo Mitsui Banking Corporation (SMBC)
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A total of 44 banking groups have
confirmed their adoption of the BPO
This week’s BPO sessions
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Open Account Trade and the Bank Payment Obligation Wednesday 31 October 14:00 - 15:00 in Conference room 1
BPO by Bank of Tokyo Mitsubishi UFJ Tuesday 30 October 15:00 - 15:45 in SWIFT auditorium
BPO by Standard Chartered Bank and BP Chemicals Wednesday 31 October 10:45 - 11:45 in Hyatt Room 1
Main Conference
SWIFT@Sibos