Bank Payment Obligation
Bank Payment Obligation
Bank Payment Obligation
SWIFT and ICC collaborate on enhanced rules and tools for trade finance
Overview
We are aiming at developing a set of rules called BPO. TheBPO 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.
An ICC-SWIFT endeavour
SWIFT, the financial messaging provider for more than 10,100 financial institutions and corporations in 210 countries, and the Banking Commission of the International Chamber of Commerce (ICC) have joined forces to develop and adopt an industry-wide standard: The Bank Payment Obligation (BPO). Trade finance is a critical banking service supporting the world economy. It is vital that the industry aligns on enhanced rules and tools in support of trading counterparties whether large or small. TheICC Banking Commission views the development of the BPO rules and the related ISO 20022 messaging standards as strong foundations for banks to provide modern risk and financing services alignedwith todays technologyevolution. Kah Chye Tan
Global Head of Trade and Working Capital, Barclays, and Chair of the ICC Banking Commission
New challenges have emerged as a result of the crisis of confidence in credit markets, forcing the implementation of a more restrictive regulatory regime. This has intensified corporate demand not only to apply rigorous measures to the management of risk but also to identify ways of optimising the management of working capital and enhancing process efficiency.
Adoption by theindustry
For decades now the Documentary Credit has become established as an universal market practice, thanks largely to the pub lication and maintenance by the ICC of a set of rules, the Uniform Customs & Practice (UCP). The universal acceptance of the UCP by practitioners in countries with widely divergent economic and judicial systems is testament to its success. The BPO goes a step further. Both ICC and SWIFT believe that by working together and leveraging their respective positions across the trade finance community, they can ensure that the BPO will have an impor tant role to play in supporting the develop ment of international trade in the 21st century, addressing cost pressures in the face of increased automation and changes in the regulatory environment.
BPO will combine thebest of both worlds (Documentary Credit andOpen Account)
Contract
Contract
Contract
Buyer
Application Documents
Seller
Documents Advice
Buyer
Data
Documents
Seller
Data
Buyer
Documents
Seller
Letter of Credit
Documents
Open Account
LC Issuing Bank
Issuance
LC Advising Bank
Buyers Bank
Payment
Sellers Bank
Payment
Array of risk, financing and processing services to address both cash management and trade finance needs
Why participate?
Global banks and corporates are already investing into the BPO project
Access to flexible pre-shipment or post-shipment finance The credit risk is transferred from the buyer to the Obligor bank Reduces risk of buyer cancelling or changing the order
Steady source of commission andfee income Opens door to new business opportunities
The buyer cannot refuse to pay due to a complaint about the goods
Foreign exchange risk can be eliminated with a BPO issued in the currency of the sellers country The buyer can structure payment according to the buyers interests The seller can structure the delivery schedule according to the sellers interests, determining when payment will be made and shipping the goods accordingly The bank bears responsibility for any oversights
Automated solution
Meets the market requirement for banks to collaborate more on risk and client on-boarding.
The buyer can negotiate better terms and conditions. By issuing a BPO, the buyer demonstrates the ability to pay and can negotiate improved terms in the future The BPO protects the buyer since the bank only pays when the seller complies with the specific terms and conditions and produces the data required The buyer can build safeguards into the BPO, including inspection of the goods and quality control, and set production and delivery times BPO increases convenience; reducescost
By removing subjectivity of physical document-checking the risk of discrepancy, dispute and delay is reduced.
BPO can be introduced at any stage of the transaction. Mismatches can be accepted Automated processing accelerates settlement and financing
Contact information
Thierry Senechal International Chamber of Commerce (ICC) Senior Policy Manager ICC Banking Commission Telephone +33 1 4953 2898 Email: thierry.senechal@iccwbo.org Andr Casterman SWIFT Head of Banking, Trade and Supply Chain Co-Chair, ICC BPO Project Telephone +32 2 655 4530 Email: andre.casterman@swift.com
38 Cours Albert 1er, 75008 Paris, France Tel: +33 (0)1 49 53 28 28 Fax: +33 (0)1 49 53 28 59 www.iccwbo.org