The ISBP (full title: International Standard Banking Practice for the Examination of Documents under Documentary Credits) is an International Chamber of Commerce (ICC) publication which provides important guidance regarding the examination of documents presented against letters of credit. It is important to note that the ISBP cannot in any way change the UCP 600 rules which apply to letters of credit, but it is nonetheless a valuable companion guide to UCP.
ISBP was initially approved by the ICC in 2002 and this first version acted as a companion guide to Uniform Customs and Practice (UCP) 500 which were the current rules that governed letters of credit at that time.
When the rules were revised to UCP 600 in July 2007, the ISBP was duly updated by the ICC publication No.681, thus aligning the ISBP with the newly updated UCP.
A fully revised version of ISBP, ICC publication 745 was published in July 2013. This entailed a substantial update to the former version and includes a number of both new and reworded interpretations as well as some significant additions resulting from various official opinions published by the ICC. ISBP has therefore become an absolutely essential publication for anyone who is involved in letters of credit.
The application of the UCP 600 rules and ISBP is covered in our popular in-house training programmes:
This article highlights some of the key changes in the revised guide but it is worth emphasising why the first ISBP was produced back in 2002, both with the same objective ;
- To encourage a uniformity of practice worldwide to reduce the number of credits rejected by banks owing to discrepancies.
- The ISBP provides practices that should be applied by documentary credit practitioners helping to reduce discrepant presentations.
The contents of ISBP 745 are as follows:
- Preliminary Considerations
- General Principles
- Drafts and Calculation of Maturity Date
- Transport Documents covering at least two different modes of transport
- Bills of Lading
- Non-Negotiable Sea Waybill
- Charter Party Bill of Lading
- Air Transport Document
- Road, Rail or Inland Waterway Transport Documents
- Insurance Document and coverage
- Certificate of Origin
- Packing List, Note or Slip
- Weight List, Note or Slip
- Beneficiary’s Certificate
- Analysis, Inspection, Health, Phytosanitary, Quantity Quality and Other Certificates.
The following is a selection of, what we consider to be some important information / changes following the release of the revised ISBP. It is not intended to be a definitive guide, rather our interpretation of changes which, having discussed these with a number of our clients, are worth emphasising to ensure that documentary presentations are compliant when they are examined by banks.
1. Under Preliminary Considerations, there is an expanded paragraph on the risks that accompany a beneficiary accepting a letter of credit which requires the presentation of a document that is to be issued, signed or countersigned by the applicant. The expanded text emphasises that the beneficiary of the letter of credit should consider the appropriateness of this requirement carefully or seek an amendment. Having encountered a number of letters of credit with similar clauses in recent months, all issued by banks in the Middle East, this is a naturally a real risk. In one instance the presentation of a document which had to be signed by a specifically named individual within the applicant’s organisation, represented 30% of the total value, but competitive forces meant that the beneficiary had reluctantly made a commercial decision to allow this onerous clause to remain in the Letter of Credit. I sincerely hope that they obtain this document and get paid!
2. Under General Principles, “virgules” (ie., slash marks ( “/” ) used to separate alternatives) are discouraged, however where they do appear, eg., on a SWIFT MT700 in the goods description field 45A reads:
“Red / Blue / Yellow sweatshirts according to PO number 76598654”
with no further clarification, ISBP provides guidance that the documents presented could evidence only Red or only Blue or only Yellow, or any combination of them. This is valuable clarification for every documentary credit practitioner.
3. The ISBP now states that when a certificate, declaration or statement is required by the letter of credit, the document is to be signed. Most of our clients have told me that they would of course routinely sign such documents, but again this explicit clarification is helpful. It is unusual to come across a letter of credit which does not call for some form of certificate evidencing that ….. has taken place, so it is an important point to note.
4. Copy Transport Documents. If the letter of credit calls for copy transport documents rather than originals, the ISBP states that UCP 600 articles 19-25 which relate to transport documents do not apply. Copy transport documents are to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f), which effectively means that the document presented appears to fulfil the function of the required document and that there is no conflict regarding the data on the document, with any other document stipulated in the letter of credit.
5. The ISBP contains a sub-section which refers to Expressions not defined in UCP 600, explaining if these expressions are used, how to interpret them. New additions in ISBP 745 are “shipping company” and “documents acceptable as presented”, together with an expanded explanation of “third party documents notacceptable”. Perhaps the most onerous expression is “documents acceptable as presented” which almost seems to undermine the very use of a letter of credit. The ISBP provides clarity that if this expression is used a presentation may consist of one or more of the stipulated documents provided they are presented with the expiry date of the credit and the drawing amount is within that which is available under the credit. The documents will not otherwise be examined for compliance under the credit or UCP 600, including whether they are presented in the required number of originals or copies. This fresh interpretation does at least provide some criteria, albeit very scant, should this set phrase be encountered.
6. Shipping Marks – as a former documentary examiner for a bank, I am conditioned to want to see exact mirror images when comparing documents to letter of credit. This is not necessarily the case or indeed correct, but it is, for me, a natural reaction. With this in mind, the ISBP indicates that if a letter of credit states that the details of a shipping mark are to be evidenced on specific documents, these details must be shown but not necessarily in the exact same sequence as expressed in the letter of credit. Some of our clients have commented that this is a surprise to them as they would never consider presenting documents which contain shipping marks in any other sequence to that required in the letter of credit, but it is worth noting these revised guidelines in the ISBP.
7. Invoices. Perhaps one of the areas that causes the most debate amongst documentary credit practitioners is the description of goods on the invoice compared to the description as stated within the letter of credit. ISBP reinforces UCP 600 Article 18, which uses the word ‘correspond’ when stating how the goods description should be represented on the invoice compared to the letter of credit. The ISBP expands on this by mentioning that invoices may also indicate additional data in respect of the goods, service or performance provided that such data does not appear to refer to a different nature, classification or category of goods, service or performance. Examples are provided as follows: “Imitation Suede Shoes” where the goods description on the credit states “Suede Shoes” or “Second Hand Hydraulic Drilling Rig” where the credit has a requirement for “Hydraulic Drilling Rig”. Such classifications would be deemed unacceptable due to a change in classification or category of the goods. Our recommendation is that the tried and tested policy of quoting the goods description on the invoice verbatim as per the goods description required under the letter of credit is still the best course of action.
8. Bills of lading. “A bill of lading may be issued by any entity other than a carrier or master (captain), provided it meets the requirements of UCP 600 article 20” is an important statement made within ISBP 745. In consideration of this, if a letter of credit includes a stipulation such as “Freight forwarder Bills of Lading are not acceptable” or words to this effect, this has no meaning in the context of the title, format, content or signing of a bill of lading unless the letter of credit provides specific requirements detailing how the bill of lading is to be issued or signed. In the absence of these requirements, such a stipulation will be disregarded and the bill of lading presented is to be examined according to the requirements of UCP 600 article 20. So in short, such clauses are totally superfluous and will be disregarded. This interpretation has been warmly welcomed, rather unsurprisingly by many freight forwarders as this is a very clear section and leaves the document examiner in no doubt as to what is acceptable
9. Country named on bill of lading. A client attending our popular “Essential Guide to Letters of Credit” training course recently raised a question regarding the Port of Loading stated on a bill of lading. A well known UK bank had raised a discrepancy that the Port of Loading was stated as ‘Felixstowe’, whilst the credit stipulated ‘Felixstowe, UK’. This is quite a common question, however ISBP 745 is quite clear on this issue – A bill of lading is to indicate the port of loading stated in the credit. When a credit indicates the port of loading by also stating the country in which the port is located, the name of the country need not be stated.So the bank in question erroneously raised this as a discrepancy. This interpretation also applies to air waybills, with no requirement for the country to be stated on the document.
10. Air Waybills. There are some very important elements in ISBP 745 which relate to air waybills. The carrier is to be identified by name and not merely by its IATA code, so for example British Airways needs to be stated rather than “BA” or Singapore Airlines instead of just “SQ”. That said, the airport can be identified using its IATA code, so ‘LHR’ can be quoted instead of London Heathrow and ‘LAX’ is similarly acceptable when referring to Los Angeles.
The ten elements of ISBP referred to in this guide are not placed in order of importance nor are they intended as anything other than a brief introduction highlighting the common issues raised during our conversations with clients or delegates who attend our training courses.
The latest version of ISBP represents a much more comprehensive interpretation of how the UCP 600 rules are applied in practice and is a must for anyone involved in the collation or presentation of documents under letters of credit.
A detailed review of both the UCP 600 rules and ISBP 745 in included in our Advanced Letter of Credit Training Course.