The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the issuance and use of letters of credit.
UCP 600 is prepared by International Chamber of Commerce’s (ICC) Commission on Banking Technique and Practice. The rules have been effective since 1 July 2007.
There are several significant differences exist between UCP 600 and UCP 500. Some of these differences are as follows;
- The number of articles reduced from 49 to 39 in UCP 600;
- In order to reach a standard meaning of terms used in the rules and prevent unnecessary repetitions, two new articles have been added to the UCP 600. These newly added articles are Article 2 “Definitions” and Article 3 “Interpretations”. These articles bring more clarity and precision in the rules;
- The replacement of the phrase “reasonable time” for acceptance or refusal of documents by a maximum period of five banking days.
- The language of this document is more simple, precise and objective.
- An expression like “reasonable care”, “reasonable tie” etc. have been avoided. This will reduce the scope of different interpretations by different people.
- Words like “honor”, “negotiations”, “compliance” would be more clearly understood now than ever before.
- It is made clearer in UCP 600 that banks deal only with documents and not with goods, services, and performance.
- The liability of issuing bank has been defined more exactly than ever before
- The maximum period for examination of documents has been reduced from 7 to 5 working days. This will make the whole process faster.
- Rules given in UCP 600 are clearer than the UCP 500. It will help to reduce down the discrepancies and reduce the cost due to avoidable discrepancy fees charged by many banks.
- UCP 600 also provides more positive changes in transport and insurance documents.
There are total 39 articles in UCP 600, but we are only going to cover few important ones
Article 1: In terms of article no.1, all the LCs is to be established or opened as per UCP 600 affected from 1st July 2007.
Article 2: Definition of LC: “Credit means any arrangement, however, named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation.”
Article 3: In UCP 600 all the LC’s are irrevocable (can’t be canceled after opening)
Article 8: “Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honor or negotiates a complying presentation.” If the bank doesn’t want to confirm it, then the bank has to inform the same in 5 working days to the LC opening bank.
Article 9: If advising bank, advising the LC then it’s the bank risk & responsibility. And if the bank doesn’t want to advise then it has to inform the LC opening bank in 5 working days.