Sibos ICC UR BPO briefing

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Sibos ICC briefing on Supply Chain Finance and the new Uniform Rules for Bank Paymennt Obligation

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Sibos ICC UR BPO briefing

  1. 1. ICC briefing on supply chain finance and UR BPOSibos Osaka29 October 2012 1
  2. 2. Welcome!• To update the Trade bankers on the progress on UR BPO rules• To share our next steps in view of formal adoption of UR BPO rules in April 2013• To suggest your joining this industry innovation and increase corporate awareness 2
  3. 3. Speakers• Kah Chye Tan, Global Head of Trade and Working Capital, Barclays Corporate and Chair ICC Banking Commission• Dan Taylor, Managing Director, J.P.Morgan and Vice- Chair ICC Banking Commission• Daniel Schmand, Head of Cash Management and Trade Finance EMEA, Deutsche Bank and Vice-Chair ICC Banking Commission• David Vermylen, Global Credit Manager Chemicals, BP 3
  4. 4. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 4
  5. 5. Cooperation Sibos Toronto Both the ICC and SWIFT believe that by working together and leveraging their respective positions across the trade finance community, the BPO will have an important role to play in supporting the development of international trade in the 21st century in Kah-Chye Gottfried addressing cost pressures in the face of TAN LEIBBRANDT increased automation and changes in the ChairICC Banking CEO regulatory environment.Commission SWIFT 5
  6. 6. Roles of ICC and SWIFTTo help banks provide The ICC Banking Commissioninnovative trade and supply is a leading global rule-makingchain services that enable their body for the banking industry,corporate customers to: producing universally accepted – reduce risk rules and guidelines for – enhance process international banking practice, efficiency notably letters of credit, demand guarantees and bank- – improve liquidity to-bank reimbursement. management. Over 500 members in 85More than 9,000 financial countries.institutions in 209 countries. 6
  7. 7. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 7
  8. 8. The current instruments Contract Contract Documents Buyer Seller Buyer Seller Documents Application Documents Letter of Open Advice Credit Account Continuous Documents shift IssuanceLC Issuing LC Advising Buyer’s Seller’s Bank Bank Bank Bank Payment Payment Bank risk / financing services Bank services limited to based on paper document payment processing. processing If any risk, Credit Insurance or Payment Guarantee is added 8
  9. 9. The opportunity for banks Contract Contract Documents Documents Buyer Seller Buyer Seller Bank Open Data Data Payment Account Obligation Bank-assisted open account Data Obligor Recipient Buyer’s Seller’s Bank Bank Bank Bank Payment PaymentBank risk / financing services Bank services limited tobased on electronic trade data payment processing The BPO enables bank-assisted Open Account trade 9
  10. 10. BPO is an alternative instrument BPO is a new payment term in the ICC Int’l Sales Model Purchase Order Contract Established Transport docs Data/Paper B2B Certificates Invoices practices LC BPOBuyer Seller Transaction data facilitating Data the provision of Irrevocable and conditional risk & financing inter-bank payment services obligation (BPO) Buyers ICC Sellers Bank SWIFT Bank An industry-wide messaging and A legally binding rulebook owned matching platform that implements by the ICC and based on 10 the BPO in a multi-bank way ISO 20022 standards
  11. 11. The Bank Payment ObligationA BPO is an irrevocable undertakinggiven by a bank to another bank thatpayment will be made on a specifieddate after successful electronic matchingof data according to an industry-wide setof rules.Therefore, a BPO offers: • An assurance of payment • Risk mitigation for all parties • Possible use as collateral for finance An alternative instrument for trade settlement 11
  12. 12. Industry standards • Trade Finance instruments (UCP600, URDG758, URC 522, URBPO, …) • MT standards (for L/Cs, Demand Guarantees, Collections) • ISO 20022 standards (for BPO) • ISO 9362 Business Identifier Code (BIC) • ISO Country codes, Currency codes, …Industry standards are industry-owned and technology-neutral. They coherently address legal and operational aspects. 12
  13. 13. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 13
  14. 14. Organisational structure Group BPO Working Group Activities Co-chairs: ICC and SWIFT Deliverables Legal Drafting Education Commercialisation Education Group Commercialisation Drafting Group Co-chairs: Group Chair: JPM and Vale Coordination: ICC SWIFT Consultative Group Bank andUR BPO Corporate case Bank-to-bank rules Co-chairs: tests CITI & FirstRand studies Collaterals and Corporate on- Reviews of Draft Training boarding UR BPO rules Accounting and Regulatory Consultancy Treatment 14
  15. 15. ICC UR BPO Rules TimelineDATE MILESTONEMarch 2012 First review by ICC BPO Consulting GroupEnd March 2012 Presentation to ICC Banking Commission in DohaMay 2012 Second review by ICC BPO Consulting GroupMay 2012 Drafting Group review comments from Consulting GroupMay 2012 Send draft version to National CommitteesAugust 2012 Review of comments from ICC National CommitteesSeptember 2012 Drafting Group to issue revised versionNovember 2012 Full presentation of ICC UR BPO Rules to ICC Banking CommissionDecember 2012 Review of additional comments from ICC National CommitteesJanuary 2013 Drafting Group distribute proposed final version of ICC UR BPO Rules to National CommitteesApril 2013 Targeted approval at ICC Banking Commission 15
  16. 16. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 16
  17. 17. BPO Accounting Treatment Party Transaction flow Liability Accounting Confirming obligor role Contingent • Off Balance sheet(All) Obligor Bank(s) • Unfunded In case of “silent Contingent • Off Balance SheetRecipient Bank confirmation” • Unfunded• Obligor Bank Payment at sight after End of liability End of liability• Recipient Bank Dataset Match Report (in case of “silent confirmation”)• Obligor Bank Deferred Payment Direct • On Balance Sheet• Recipient Bank Undertaking after • Unfunded (in case of “silent Dataset Match Report confirmation”)• Obligor Bank Discount of Deferred Direct • On Balance Sheet• Recipient Bank Payment Undertaking • Funded (in case of “silent confirmation”) 17
  18. 18. BPO Capital Treatment• Many arguments in favour of similar treatment as Commercial Letters of Credit – Contingent, self-liquidating instruments – Low losses (see ICC Trade Finance Default Register) – A BPO should not be treated as a (performance related) Guarantee or Stand-By Letter of Credit as a Guarantee is not a payment instrument and BPO is a self-liquidating payment instrument – A BPO should not be treated as a lending instrument as BPO is contingent and (initially) unfunded – Capital treatment similar for the Obligor Bank(s) and the Recipient Bank (in case of “silent confirmation”) 18
  19. 19. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 19
  20. 20. Key benefits for the seller Cash flow Supply Chain Optimization Finance Get paid on time Pre-/post shipment finance Improve DSO and DIO Alternative to credit insurance Mitigate payment default risk of OA Extension of reverse factoring Improve liquidity forecasts Improve discrepancy management Reduce processing effort Syndicate payment risk 20
  21. 21. Key benefits for the buyer Cash flow optimization Supply Chain Finance Control payment time execution Optimize use of credit lines Pay key suppliers on time Extend payment terms (DPO) Reduce administrative costs Negotiate commercial terms Reduce investigations & disputes Reduce supplier default risk Outsource payables Processing 21
  22. 22. Easier access to risk / financing services Tomorrows data-driven risk mitigation and Todays data-driven invoice-based financing services using the Purchase Order processing and financing servicesOrdering of Production Shipment of Issuance of Payment & cash goods of goods goods the invoice managementPurchase Transport Approved Payment Certificates Invoice Order Documents Invoice Initiation Pre-shipment Post-shipment E-invoicing Approved Payment Payables finance finance Factoring Financing processing Payment Timely assurance Payment New “e” services Current “e” services 22
  23. 23. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 23
  24. 24. BP Petrochemicals• 2010 Revenues of USD 14 billion• Revenue created for approx. 50% in Asia• Trade account receivables of EUR 1.4 billion (consolidated receivables only)• More than 600 clients worldwide 24
  25. 25. Key challenges• Trade account receivables of EUR 1.4 billion (consolidated receivables only)• Competitive commodities market requires a secure and cheaper alternative to L/Cs• About 50% of exposure on secured terms – typically interacting with around 50 banks• High processing and confirming costs (0,8% of transaction value in average)• LCs process limits commercial possibilities and reduces the competitiveness of the offering• LCs administration weakens compliance under certain conditions• Reduced need for specialized LC training and specialized LC vetting personnel 25
  26. 26. Long, costly and cumbersome doc. credit process Re-route ships in … or risk due …..or storage at case of refusal of Delayed delivery to a waiver port of destination documentsPhysical Supply Chain Purchase Production Shipment Delivery Order PO BOL InvoiceFinancial Supply Chain L/C issuance and L/C issuance and Documents presentation and Payment acceptance acceptance compliance verification Documentation standards require buyer to send L/C much earlier than Buyer cannot free its the anticipated shipment date credit limits Trade Post-Trade Pre-settlement Settlement T T+1 T+10 S > T+20 26
  27. 27. BPO based on transport & invoice data Delivery Carriers 4 Shipment of goods Documents sent directly to the client Use minimum fields 1 Purchase order 8 Shipping documents (BOL) immediately 9 Invoice and certificates (authenticated and legalized) Buyer Seller Request BPO Inform of BPO 3 2 based on PO establishment Trade BPO is Established Services baseline Utility dueTransport and BPO (TSU) BPO 5 Transport and 6invoice data Obligor Recipient invoice data(match report) Bank Bank Advise payment is 10 Transfer funds at maturity 7 due on agreed date 27 27
  28. 28. BPO establishment and obligation 1 Buyer and seller agree on the BPO terms and the Buyer sends a purchase order to the sellerestablishment Buyer provides the minimum data from the PO and the BPO conditions to the Obligor bank Baseline 2 3 Seller confirms the data from the PO and the BPO conditions to the Recipient bank If the submitted data matches on the TSU, the “baseline” is established. Buyer and Seller receive the matching report from their banks BPO is irrevocable but conditional (subject to the electronic matching of agreed datasets) 4 Seller ships the goods to the port of destination Matching 5 Seller provides the shipment and invoice data to its bank, which submits it to TSU for matching 6 Buyer receives a match report from its bank and is invited to accept mismatches, if any 7 Seller’s bank informs of the successful dataset match to the Seller BPO becomes operative and due according to the agreed payment terms 8 Seller sends the bill of lading immediately by courier to the Buyer (eventually with a copy to the Buyer) Settlement Seller sends the invoice and required certificates (authenticated and legalized as required) to the buyer so 9 that he can receive the goods On the due date, the Obligor bank debits the proceeds from Buyer’s account and remits the funds to the 10 Recipient bank. The Recipient bank credits the seller’s account 28
  29. 29. Benefits • Get paid on time and avoid judicial proceeding • Easier access to banks to secure transactionsRisk mitigation • Easy to exercise tool for liquidity • Possibility to spread the risk with multiple obligors • Free up banking lines • Leaner operations and improve speed of handling Operational • Reduce the risk of discrepancies, limit to relevant trade information only efficiency • Quicker resolution of deviations (amendments) • Remove costs due to confirmation, vetting and presentation • Reduce complexity – removal of paper trail Enhance • Reduce cost for customers due to vetting and presentationcompetitiveness • Quicker assurance for buyers in terms of security of supply • Improve customer offer by allowing for flexible options 29
  30. 30. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 30
  31. 31. ICC Banking CommissionThe leading and trusted authority for banking and trade finance• Global standard setter and policy forum• Commercially oriented value proposition• Think tank for research and intelligence
  32. 32. 5 Major Initiatives Undertaken1. Human capital • ICC, National Committees, Banking Commission • Banking: Advisory Board, Executive Committee, Secretariat • Roles and responsibilities2. New products • Rule-drafting: Forfaiting, supply chain financing, ISBP • Market intelligence: ICC Surveys, ICC Register, etc.3. Regulatory policy engagement • Leading voice for Basel III, KYC, sanctions, etc. • Basel, WTO, IMF, UN, MDBs, ECAs…4. New sources of revenue and outreach • ICC Banking Academy • Regional Banking Commissions5. Strengthen the value proposition
  33. 33. ICC BC Business Plan 2012-2015 The ICC Banking Commission has structured its strategy around the following service lines:  AREA 1: Traditional Trade Services  AREA 2: Open Account & Supply Chain Financing  AREA 3: Global Regulatory  AREA 4: Legal & Compliance  AREA 5: Special projects involving multilaterals, export credit agencies and insurance, focused on emerging markets
  34. 34. Agenda• Introduction• New Uniform Rules for Bank Payment Obligation• The ICC BPO Project Deliverables and Timeline• The accounting and capital treatment of BPO• The corporate need for new rules for open account trade• A BPO Corporate Case study: BP Chemicals - Octal• The ICC Banking Commission team and projects• Conclusion 34
  35. 35. Next steps for you• Join the BPO Community (44 banks today)• Test BPO with your correspondent banks (TSU)• Engage with corporate clients• Develop your business case and readiness plan Get ready now as ICC will launch UR BPO in Q2 2013 35
  36. 36. 4 banks are live on BPO Banks with live transactions + 1 corporate case studyLive Banks Region Intra / Inter- Locations of Corporate case bank live corporate study transations supply chainsBank of China APAC Intra in China CN Ito Yokado’s Chinese Inter suppliersBank of Tokyo APAC Intra JP, HK, CN, TW Ito YokadoMitsubishi UFJ InterKorea Exchange APAC Inter KR Automotive industryBank (in development)Standard EMEA Intra BE, OM BP ChemicalsChartered Bank Octal 36
  37. 37. 12 banks are ready for live use Banks ready to go live but with no live BPO transactions yet• Bank al Etihad (Jordan)• Barclays• Byblos Bank (Lebanon)• Commercial Bank of Dubai A total of 44 banking• Commerzbank groups have• Deutsche Bank confirmed their• Hua Nan Bank (Taiwan) adoption of the BPO• J.P. Morgan• Kasikornbank (Thailand)• Siam Commercial Bank (Thailand)• Standard Bank of South Africa• Sumitomo Mitsui Banking Corporation (SMBC) 37
  38. 38. This week’s BPO sessionsMain Conference Open Account Trade and the Bank Payment Obligation Wednesday 31 October 14:00 - 15:00 in Conference room 1SWIFT@Sibos BPO by Bank of Tokyo Mitsubishi UFJ Tuesday 30 October 15:00 - 15:45 in SWIFT auditorium BPO by Standard Chartered Bank and BP Chemicals Wednesday 31 October 10:45 - 11:45 in Hyatt Room 1 38
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