L3 On UCP600 A2 April Intake 16 PDF

CDCS MENTOR
…....for Professionals
CDCS exam 2016

(April Intake)
preparation Program
A
Md. Mohiuddin,
Mohiuddin, cdcs
PRESENTATION
1
CDCS MENTOR,
MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com
UCP 600 - Article 2: Définitions CDCS MENTOR
For the purpose of these rules:

rules
Advising bank means the bank that advises the credit
at the request of the issuing bank.
Applicant means the party on whose request the

credit is issued.
Banking day means a day on which a bank is

regularly open at the place at which an act subject to
these rules is to be performed.
Beneficiary means the party in whose favour a credit

is issued.
CDCS MENTOR, Md. Mohiuddin;

Mohiuddin; Cell: 01716308384; e-
e-mail: cdcs.mentor.bd@gmail.com
2
1. Advising means provide credit to the beneficiary keeping credit
terms unchanged.
2. Advising bank means a bank that advises the credit.
3. Advising bank advises under request by the issuing bank.
4. Advising bank usually located at the beneficiary’s country.
5. Advising bank has no obligation to honor/payment or negotiate
unless confirmed the credit.

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“A Credit may be advised to a
Beneficiary through
another bank (the ‘Advising Bank’)”.

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UCP 500 defined the applicant of the documentary credit in article 2 in terms of
the bank’s customer. The UCP 600 definition defines the applicant as the party on
whose request the documentary credit is issued. This definition has been
broadened slightly to include a party on whose request the documentary credit is
issued. This is to provide for the fact that the applicant can be someone other than
strictly the “customer” of the bank. In today’s practice, the applicant is often the
customer of a correspondent bank or a subsidiary of the bank’s customer. The use
of the term “party” in the definition is not intended to include the applicant as a
party to the documentary credit, but to reflect the concept that the applicant can
mean an entity other than the bank’s actual customer.
Comments of Drafting Group

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Banking Day: Two Principles
i. Banks are regularly open which varies country to country.
ii. Banks are open at their places to perform an act (e.g., to

issue/ advise/amend/transfer a credit or
examine/honor/negotiate a presentation) subject to the UCP.
UCP600 Article 02: Banking day means a day on which a bank is regularly
open at the place at which an act subject to these rules is to be performed.

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UCP600 Article 02:
Beneficiary means the party in whose favour a credit is issued.
Please Recall: Credit is a trade settlement/payment method.

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rules
Complying presentation means a presentation that is

in accordance with the terms and conditions of the
credit, the applicable provisions of these rules and
international standard banking practice.
Confirmation means a definite undertaking of the
confirming bank, in addition to that of the issuing
bank, to honour or negotiate a complying
presentation.
Confirming bank means the bank that adds its
confirmation to a credit upon the issuing bank's
authorization or request.

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Complying Presentation: Three Standards
The presentation must comply with the

terms and conditions of the credit.
The presentation must comply with the

applicable provisions of UCP600 rules
(except those which are excluded or modified by the credit).
The presentation must comply with International Standard

Banking Practice. (NOT mean the ISBP Publication)

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What is International Standard Banking Practice?
Does it refer to ISBP 681 or 745 ??

‘International Standard Banking Practice includes
practices that banks regularly undertake in
determining the compliance of documents. Many of
these practices are contained in ISBP publication
however the practices are broader than what is
stated in the publication. That is why, International
Standard Banking Practice does not specifically refer
to ISBP (ICC Publication No.681).’
COMMENTED BY UCP600 DRAFTING GROUP

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1. Confirmation means giving definite undertaking regarding honor
or negotiation in favor of beneficiary by the Confirming bank
2. The definite undertaking is the additional to that of the issuing bank
3. The definite undertaking is given under authorization or
request by the issuing bank
4. The definite undertaking will be fulfilled provided complying
presentation is made.
UCP600 Article 02: Confirmation means a definite undertaking of the confirming bank,
in addition to that of the issuing bank, to honour or negotiate a complying presentation.

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Confirmation means definite undertaking
for honor or negotiation.
Confirming bank means the bank that adds confirmation.

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rules
Credit means any arrangement, however named or
described, that is irrevocable and thereby constitutes a
definite undertaking of the issuing bank to honour a
complying presentation.
Honour means:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at
maturity if the credit is available by deferred payment.
c. to accept a bill of exchange ("draft") drawn by the
beneficiary and pay at maturity if the credit is available
by acceptance.

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an arrangement
Can be named or described in any manner
irrevocable
a definite undertaking of the issuing bank to
honour a complying presentation.
UCP600 Article 02: Credit means any arrangement, however named or
described, that is irrevocable and thereby constitutes a definite undertaking
of the issuing bank to honour a complying presentation.

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Three Methods
to pay at sight if the credit is available by sight payment
to incur a deferred payment undertaking and pay at

maturity if the credit is available by deferred payment.
to accept a bill of exchange ("draft") drawn by the beneficiary

and pay at maturity if the credit is available by acceptance.

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rules
Issuing bank means the bank that issues a credit at the

request of an applicant or on its own behalf.
Negotiation means the purchase by the nominated

bank of drafts (drawn on a bank other than the
nominated bank) and/or documents under a
complying presentation, by advancing or agreeing to
advance funds to the beneficiary on or before the
banking day on which reimbursement is due to the
nominated bank.

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1. Issuing bank = a bank that issues a credit
2. Issuing bank may issue the credit receiving request from the applicant
3. Issuing bank may issue the credit for it’s own behalf
Let recall the features of “CREDIT”:

An irrevocable arrangement at which issuing bank provide definite
undertaking to honor/make
honor payment against complying presentation.
presentation
UCP600 Article 02: Issuing bank means the bank that issues
a credit at the request of an applicant or on its own behalf.

17
Purchase by the nominated bank of drafts
and/or documents under a complying
presentation. Negotiation by a bank on
which the drafts are drawn.
Purchase by advancing funds to the
beneficiary on or before the banking day Negotiation by the issuing bank
(anticipated reimbursement date) on
which reimbursement is due to the An agreement/commitment by
nominated bank. the nominated bank to advance
funds if and when funds are
Purchase by agreeing to advance funds to the received from the issuing bank.
beneficiary on or before the banking day
(anticipated reimbursement date) on which Receipt or examination and
reimbursement is due to the nominated bank. forwarding of documents.


rules
Nominated Bank means the bank with which the

credit is available or any bank in the case of a credit
available with any bank.
Presentation means either the delivery of documents

under a credit to the issuing bank or nominated bank
or the documents so delivered.
Presenter means a beneficiary, bank or other party

that makes a presentation.

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Question: Please explain, under the definition of negotiation, “On or before
the banking day on which reimbursement is due to the nominated bank”.
Suggested Answer:
Answer: The basic premise of negotiation is that a nominated
bank advances their own funds to the beneficiary. If a nominated bank
effects settlement to the beneficiary utilising funds that have already been
received from an issuing bank or reimbursing bank they are not
negotiating, they are honouring. Therefore,, the wording in the definition
of negotiation reflects that the act of advancing or agreeing to advance
funds is fulfilled by the nominated bank on or prior to the receipt of
reimbursement from the issuing bank.

20
CDCS MENTOR
.......…..for Professionals
Question:
Question: For a negotiation to occur is a draft a must?
Suggested answer:
answer: There is no requirement for a draft to be called for
under a negotiation credit. The definition of negotiation refers to “the
purchase…..of drafts….. And/or documents under a complying
presentation,…..”. The choice of whether a draft is required is usually
that of the issuing bank as part of their standard LC application form.

21
Question:
Question: According to article 2 is confirmation revocable or
irrevocable?
Suggested answer:
answer: A confirmation represents the giving of an
undertaking by the confirming bank in addition to that of the issuing
bank. As such, it is irrevocable. It should be noted that sub-article 8(b)
states that the confirming bank is irrevocably bound as of the time it
adds its confirmation to the credit.

22
Question:
Question: According to the word ‘Presentation’ who presents the
documents, the beneficiary or the presenting bank?
Suggested answer:
answer: The answer lies in the definition of “Presenter” i.e. a
beneficiary, a bank or other party that makes a presentation. In most
cases, it will be a beneficiary or their bankers that will present to a
nominated bank. It can also be a freight forwarder that may be
providing the beneficiary with services such as document preparation.

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CDCS MENTOR

CDCS exam 2016

For the purpose of these rules:

Applicant means the party on whose request the

Banking day means a day on which a bank is

Beneficiary means the party in whose favour a credit

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

Comments of Drafting Group

CDCS MENTOR, Md. Mohiuddin;

i. Banks are regularly open which varies country to country.

ii. Banks are open at their places to perform an act (e.g., to

CDCS MENTOR, Md. Mohiuddin;

Please Recall: Credit is a trade settlement/payment method.

CDCS MENTOR, Md. Mohiuddin;

For the purpose of these rules:

Complying presentation means a presentation that is

CDCS MENTOR, Md. Mohiuddin;

The presentation must comply with the

The presentation must comply with the

The presentation must comply with International Standard

CDCS MENTOR, Md. Mohiuddin;

Does it refer to ISBP 681 or 745 ??

COMMENTED BY UCP600 DRAFTING GROUP

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

Confirming bank means the bank that adds confirmation.

CDCS MENTOR, Md. Mohiuddin;

For the purpose of these rules:

CDCS MENTOR, Md. Mohiuddin;

Can be named or described in any manner

CDCS MENTOR, Md. Mohiuddin;

to pay at sight if the credit is available by sight payment

to incur a deferred payment undertaking and pay at

to accept a bill of exchange ("draft") drawn by the beneficiary

CDCS MENTOR, Md. Mohiuddin;

For the purpose of these rules:

Issuing bank means the bank that issues a credit at the

Negotiation means the purchase by the nominated

CDCS MENTOR, Md. Mohiuddin;

Let recall the features of “CREDIT”:

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

For the purpose of these rules:

Nominated Bank means the bank with which the

Presentation means either the delivery of documents

Presenter means a beneficiary, bank or other party

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

CDCS MENTOR, Md. Mohiuddin;

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