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This covered Benefits of transitioning from UCP 600 to eUCP Version 2.1 

and was published on 2 April 2024. 

It should be noted that all ICC Briefings are for educational guidance only. 

ISSUE

The eUCP Version 2.1 and the User Guide to eUCP were published with a view to encouraging the adoption of electronic documents. It is strongly recommended that practitioners download the Guide which includes a detailed analysis of each article of the eUCP and provides practical guidance to parties in respect to the issuance of an eUCP credit, and to the presentation of electronic documents. 

Digitalisation of trade, particularly documentary trade, has long been under discussion within the trade finance arena. Paper-based trade finance, apart from being inefficient, does not easily fit into the development of sustainability aspirations nor modern compliance requirements within the industry. With market participants displaying increasing interest, the use of solutions that support paperless trade is gaining momentum. ICC rules are progressively in alignment to allow synchronisation of the needs of Corporates, Banks, Service Providers, and Fintechs thus addressing the evolvement of trade finance in a digitalised world. 

The recent alignment of the eUCP with the UN Model Law on Electronic Transferable Records (MLETR) is another step towards digital cross border trade. Providing further support, the ICC Digital Standards Initiative's (DSI) Key Trade Document and Data Elements (KTDDE) Working Group has published analysis and best practice recommendations for digitalising 21 commonly used key trade documents, and established a process for aligning core data elements across the entire set of 36 key trade documents in the Cross-border Paperless Trade Toolkit co-published by the WTO, UNESCAP and UNCITRAL in 2022. The DSI framework offers a roadmap to digitalising every key trade document across the end-to-end supply chain, as well as an approach to align data towards interoperability and secure data sharing therein. 

INTRODUCTION

Using UCP 600 in a digital environment results in Corporates and Financial Institutions facing several challenges that impact the efficiency and effectiveness of their trade finance operations; while  transitioning from UCP 600 to eUCP Version 2.1 brings numerous advantages to a business. 

As legal changes are emerging with respect to the adoption/integration of MLETR and/or changes in local laws supporting the electronic handling of negotiable instruments, this Briefing is intended to act as a stepping-stone towards the industry target for paperless trade. 

ANALYSIS

Documentary credits issued subject to UCP 600 rely heavily on paper-based documentation. Such manual process is time-consuming, error-prone, and susceptible to delays, increasing the risk of discrepancies (and increased time to remedy them), emanating in delays in trade transactions, additional negotiation efforts and, potentially, the rejection or partial rejection of documents, causing frustration for all parties involved. Delays in physical movement of documents across borders and processing can result in missed deadlines, late shipments, and impact upon relationships between buyers and sellers.

Greater operational costs contribute to reduced profit margins, and the integral inefficiencies result in Financial Institutions and Corporates being less competitive in the market.

Addressing these challenges requires a transition to digitalised solutions in order to significantly improve efficiency, reduce errors, enhance security, and streamline the entire trade finance process. It is naturally assumed that safeguards will be put in place in respect of Cybersecurity.

In addition, the industry has seen a marked increase in transition to "Telex Release" of Bills of Lading[1] or "Express Release" by means of issuance of Sea Waybills in an attempt to minimise the time taken to obtain release of goods and therefore avoid storage fees.  The adoption of electronic presentation practices and e-bills of lading under Documentary Credits offers an efficient alternative without removing the negotiability and title associated with the underlying transport document.

RATIONALE FOR TRANSITION

Efficiency:

• UCP 600: UCP relies on paper-based documentation, which can result in delays to processing.
• Transition to eUCP Version 2.1: Electronic documentation streamlines processes, reducing the time required for the issuance, presentation, re-presentation and examination of documents, and results in speedier trade transactions.

Handling of physical documents:

• UCP 600: Handling of physical documents may involve shipping, courier services, and manual verification, incurring costs for the beneficiary, nominated bank and the issuing bank.
• Transition to eUCP Version 2.1: Introduction of electronic transmission of documents eliminates the need for physical handling, reducing costs associated with both courier services and document transportation.

Cost Reduction:

• UCP 600: Manual processing involves printing, postal/courier services, and storage costs for paper documents.
• Transition to eUCP Version 2.1: Digital processes significantly reduce the need for physical paperwork, cutting down on infrastructural requirements.

Risk Mitigation:

• UCP 600: Manual processes may lead to errors and discrepancies in document handling, increasing the risk of disputes and delays.
• Transition to eUCP Version 2.1: Supports automated processes which minimise the risk of errors in documentation, reducing the likelihood of discrepancies and associated risks.
• Faster discrepancy resolution:Discrepancies in paper documents can lead to delays in the approval and settlement of transactions, requiring time-consuming communication. Electronic communication allows for real-time collaboration, enabling speedier rectification of discrepancies and ensuring smoother transaction flows. This will enable streamlined and efficient interaction between the applicant, the issuing bank, all other involved banks, and the beneficiary, contributing to a more synchronised and transparent process.

Enhanced Security:

• UCP 600: Paper documents are susceptible to loss, theft, or damage, compromising the security of trade transactions.
• Transition to eUCP Version 2.1: Electronic documents are stored securely, reducing the risk of physical loss or damage. Advanced encryption and authentication mechanisms can enhance overall document security and make it far more difficult for fraud to be perpetrated.

Improved Accessibility:

• UCP 600: Physical documents are location-dependent, making it challenging for parties in different geographical locations to access and review.
• Transition to eUCP Version 2.1: Digital documents can be accessed remotely, facilitating collaboration regardless of location, thereby improving communication and ensuring that all stakeholders have timely access to any necessary and relevant information.

Environmental, social, and governance (ESG)

• UCP 600: Paper-based processes contribute to environmental concerns through deforestation and carbon footprint associated with shipping physical documents.
• Transition to eUCP Version 2.1: A move to electronic documentation aligns with sustainable business practices, reducing reliance on paper and lowering the environmental impact of trade finance operations.

Compliance checking:

• Transition to eUCP Version 2.1:Handling of electronic documents instead of paper documents supports enhanced compliance checking, e.g., by using data or OCR on PDFs to feed the usual compliance check systems/filters (without additional scanning of paper documents).

Enhanced services and solutions

• Transition to eUCP Version 2.1:Supports the enrichment of product offerings and opportunities for speedier working capital solutions, earlier payment, and shorter settlement times allowing for reduction in overall financing costs.

Competitive Advantage:

• Transition to eUCP Version 2.1: Embracing digital transformation demonstrates a commitment to innovation and efficiency, providing a competitive edge in the market, whilst positioning a business as forward-thinking and adaptable to evolving industry trends.
• Transition to eUCP Version 2.1: As the global business landscape evolves, adopting eUCP aligns with broader trends in digital transformation and positions a business for future advancements in technology.
• Digitalisation improves Optical Character Recognition ("OCR") processes which extract data from scanned images of paper documents: removing the need for scanning such documents provides benefits in much improved data extraction and accuracy.

Auditability:

• Enhanced data management and a full digital audit trail leverages digitalisation of trade operations and fraud/AML detection solutions.

Specific benefits for the Applicant 

• Usage of an eUCP credit enables simpler and faster connectivity with banks resulting in quicker access to electronic documents or data.
• Earlier receipt of electronic transferable records such as bills of lading enables a quicker release of goods thereby avoiding demurrage costs.
• Receipt of electronic transferable records such as bills of lading will negate the risk of paper documents being lost in transit, thereby eliminating the requirement for the issuance of a shipping guarantee for the release of cargo without a bill of lading.

Specific benefits for the beneficiary 

• The introduction of the eUCP will save cost and reduce documentation preparation, physical dispatch, and errors.
• Furthermore, any related ERP integration will support the online submission of electronic documents. This will support automated sales/receivables reconciliation.
• Data can be automatically uploaded and integrated with a beneficiary's system meaning that such data can be generated quickly and ensure virtually nil variations to the underlying contract requirement as reflected in the eUCP credit. Electronic documents are more accurate and reduce the risk of errors.
• Shipping details can be uploaded from 3^rdparty carriers which (regardless of the mode of transport) can be more easily produced and procured.
• Use of electronic transferable records such as bills of lading will negate the risk of paper documents being lost in transit, thereby eliminating the requirement for the issuance of a shipping guarantee for the release of cargo without a bill of lading.

Specific benefits for Financial Institutions 

Issuing bank

• Digitalisation of the presentation process under documentary credits, thereby enhancing efficiency and automation, and reinforcing automatic document checking and compliance checking processes as there is no need to scan paper documents or extract key data if embedded within the digital document. Overall, this will lead to cost savings due to optimised processing.
• An increased flexibility to process documents independently from operation centers and/or hubs. In the event of situations such as a global pandemic, this will facilitate offshoring or usage of alternate working locations.
• The handling of formatted electronic documents enhances the quality of electronically generated documents, including electronic transferable records (compared to scanned pdfs) for internal processing.

Advising / Nominated / Confirming Bank

• Provides an opportunity to enhance the efficiency and/or automation of processes, including presentation via a bank's proprietary channel, or via separate platform connectivity.
• Potential to facilitate the receipt of a presentation in one method and forwarding the same to an issuing bank via a separate method.
• An almost real-time examination process, thereby simplifying clients' working capital requirements and potentially facilitating any related prepayment/discount process(es).

SUMMARY

As with UCP 600, by providing a shared understanding of terminologies and objectives, the eUCP ensures conformity and equivalence as opposed to divergent local, national and regional practice. However, the eUCP extends the mitigation of risk from a paper environment to a digital setting by explicitly and unambiguously supporting the usage of electronic documents. 

Practitioners can have confidence in a set of independent and trusted contractual rules which deliver uniformity, consistency and standardisation in digital customs and practice. 

Transitioning from UCP 600 to eUCP Version 2.1 is a strategic move that aligns with the current trend toward digitalisation, offering tangible benefits such as improved efficiency, cost savings, error reduction, risk mitigation, enhanced security, and enhanced compliance. 

Such transition not only addresses the shortcomings of traditional UCP processes with regards to electronic documents, but also positions a business to thrive in an increasingly digital and interconnected global trade environment.

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[1] a message that is sent via electronic means to the parties involved in a shipment of goods as replacement for a paper hardcopy of the original Bill of Lading