It is often commented that a number of banks now view discrepancy fees as an essential element of their revenue stream.
Discrepancy fees were first introduced in order to cover the additional work enforced upon a bank in the event of documents being discrepant. Bearing in mind that discrepancy rates for the initial presentation of documents have always been on the high side, this was definitely justified.
In a previous blog published in October 2015, we highlighted that in documentary credit operations, the advising of discrepancies in documents was probably the most contentious issue that a bank will face with its clients or another bank.
Global statistics differ but it is estimated that the percentage of documents refused on first presentation ranges between 60-75%. This does not necessarily mean that a beneficiary will not receive payment; but it does mean that, at the very least, there will be a delay in receiving settlement or financing and an increase in bank fees.
Some practitioners would like to see the abolition of such fees or the ineligibility of the fees if the discrepancies are subsequently accepted. The problem with this approach is that it is a matter of practice for each individual bank and UCP cannot mandate how the banking industry handles this issue.
The most appropriate response would be to concentrate on educational aspects and to find ways to actually reduce the discrepancy rate. Our training modules are one such approach.
Whilst we acknowledge that discrepancy rates are a matter for concern, a revision of UCP is unlikely to reduce the percentage rate: this has certainly been proved with the transition from UCP 400 to 500 to 600.
The majority of problems are caused by:
50% of the problems apply to the presented documents: it is a justifiable assumption that a greater understanding of ISBP 745 would help alleviate these problems and greatly reduce this percentage. As regards the remaining 50%, it is difficult to see how a revision of UCP would make much of a material difference as many of these causes are outside the scope of correction by the beneficiary.
Access to, and transparency of, existing practice is the key. This will ensure understanding, simplicity and efficiency leading to a reduction in discrepancy rates and associated fees.