L3 on UCP600 Article 02 April 2018 intake.pdf - CDCS exam 2018(April Intake preparation Program A PRESENTATION BY Md Mohiuddin Mohiuddin CSDG CDCS CITF

L3 on UCP600 Article 02 April 2018 intake.pdf - CDCS exam...

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Unformatted text preview: CDCS exam 2018 (April Intake) preparation Program A PRESENTATION BY Md. Mohiuddin, Mohiuddin, CSDG, CDCS, CITF 1 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules Advising bank means the bank that advises the credit at the request of the issuing bank. 2 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 1. Advising means provide/ handover/deliver 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. 3 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] “A Credit may be advised to a Beneficiary through another bank (the ‘Advising Bank’)”. 4 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules Applicant means the party on whose request the credit is issued. 5 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 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 UCP600 Drafting Group 6 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules 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. 7 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 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 subject to the UCP (e.g., to issue/ advise/amend/transfer a credit or examine/honor/negotiate a presentation). 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. 8 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules Beneficiary means the party in whose favour a credit is issued. 9 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 02: Beneficiary means the party in whose favour a credit is issued. Please Recall: Credit is a trade settlement/payment method. 10 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: 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. 11 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 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 Publications) 12 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 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 13 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules 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. 14 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 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. 15 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirmation means definite undertaking for honor or negotiation. Confirming bank means the bank that adds confirmation. Confirming bank acts upon request or authorization from Issuing Bank. 16 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: 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. 17 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] An arrangement Can be named or described in any manner Irrevocable Nature 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. 18 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules 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. 19 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 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. 20 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf. 21 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 1. Issuing bank is the 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 payment against complying presentation. honor presentation UCP600 Article 02: Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf. 22 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 23 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: rules 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. 24 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Purchase by the nominated bank of drafts and/or documents under a complying presentation. Purchase by advancing funds to beneficiary on or before the banking (anticipated reimbursement date) which reimbursement is due to nominated bank. the day on the Purchase by agreeing to advance funds to the beneficiary on or before the banking day (anticipated reimbursement date) on which reimbursement is due to the nominated bank. Negotiation by a bank on which the drafts are drawn. Negotiation by the issuing bank An agreement/commitment by the nominated bank to advance funds if and when funds are received from the issuing bank. Receipt or examination and forwarding of documents. Negotiation against NonComplying Presentation CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 2: Définitions For the purpose of these rules: 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. 26 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Question: Question: In line on the following in UCP600 UCP600 article 2- definition of presentation i.e., “Presentation means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered. delivered.” What is the meaning of the phrase “the documents so delivered” ? Suggested answer: answer: The UCP uses the word in two different ways and therefore the term must be read in the context in which it is used. “Delivery of document” refers to the actual delivery of the documents (Physical presentation) to the bank. “Documents so delivered” reference that the documents have already been delivered to the bank and are in the bank’s possession. 27 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Question: Question: According to the word ‘Presentation’ who presents the documents, the beneficiary or the presenting bank? 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. 28 CDCS MENTOR, -mail: [email protected] Mohiuddin; Cell: 01716308384; eee-mail: MENTOR Md. Mohiuddin; 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. 29 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Question: Question: For a negotiation to occur is a draft a must? 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. 30 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Question: Question: According to article 2 is confirmation revocable or irrevocable? 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. 31 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Query: Query: We stipulated in our LC that the working days of our bills section were Monday to Friday. Friday. If the documents were received by our bank on a Saturday and signed by a person from another department, is it correct to say that Saturday is not one of our banking days? Suggested answer: answer: The definition of ‘Banking Day’ in UCP600 Article 02 specifies that it is a day on which the bank is regularly open to perform an act subject to the rules. Your advice of the credit clearly indicated the banking days for the department concerned. A presentation made and signed for on a Saturday would not be considered as a presentation made on the following Monday or next banking day. 32 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Query: Honor or negotiationnegotiation- is this with or without recourse, recourse, or does it depend on which party (issuing bank, confirming bank or nominated bank) honours or negotiates? Suggested answer: answer: Honour under a credit is deemed to be without recourse whether it is made by an issuing bank, confirming bank or nominated bank. It is often the case that for a credit available with a nominated bank by payment, the nominated bank may enter into a form of ‘with recourse’ agreement with the beneficiary as they have given no undertaking in respect of the payment that they are being asked to make. Negotiation effected by a confirming bank is without recourse to the beneficiary (UCP600 sub-article 8(a)(ii)). Negotiation effected by a nominated bank is generally with recourse to the beneficiary, although the nominated bank may enter into a form of agreement with the beneficiary to do so on a without recourse basis. 33 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 34 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] 35 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ...
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