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Global statistics differ but it is estimated that the percentage of documents refused on first presentation under a letter of credit ranges between 65-80%. 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.

One perplexing issue is that the introduction of UCP 600 in 2007 does not appear to have reduced the discrepancy rate. In fact, a similar lack of impact on discrepancy rates was seen at the time of the introduction of UCP 400 & 500.

Does this mean that UCP has no real value? Arguably, it matters not how UCP is worded: the content will do nothing to reduce discrepancy rates.

Of course, this is a trite comment as UCP is in place to do far more than address discrepancy rates. UCP was originally developed in order to alleviate the disparity between national rules on letter of credit practice.

UCP 600 provides:

• Harmonisation as opposed to differing customs
• Common understanding of terms and intentions
• The ability to rely on a set of contractual rules that establish uniformity in practice, so that practitioners do not have to cope with a plethora of often conflicting national regulations
• A platform in which to conduct business between countries with widely divergent economic and judicial systems

The problem arises because UCP does not, and cannot, exist as a stand-alone solution. It is what happens around UCP that will produce solutions to reduce discrepancy rates.

So what is the answer?

• It all begins with training in order to provide a better understanding to practitioners of documentary credit workflows and the underlying principles of UCP. And by practitioners, we are not restricting this just to banks; it is key that all parties are included, from the buyer to the seller, and to any logistics company involved in a transaction.
• Relevant information needs to be distributed and shared: this includes ICC Opinions / DOCDEX decisions / Guidance Papers. We have alluded to this in the past, and a great deal more needs to be done to address the fact that such information is not filtering down to the right people.
• A wider awareness of the actual content of ISBP. Prior to the implementation of UCP 600 the ICC published the first version of the International Standard Banking Practice for the examination of documents under documentary credits, ICC publication No. 645. Issued in 2003, it represented the first collation of practices that were deemed to be acceptable by the membership of the ICC Banking Commission. The implementation of this publication also helped to explain the concept of ‘international standard banking practice' that had been introduced into the text of UCP 500 sub-article 13 (a) ‘Standard for Examination of Documents'. The implementation of UCP 600, in July 2007, also saw the release of an updated ISBP publication reflecting the changes made in UCP 600 (in the context of content and changes to UCP article references), under the cover of publication no. 681. Since then, a complete revision of ISBP has been undertaken and in July 2013 ISBP publication no. 745 was released.
• In fact, if anything, ISBP is the true reference work that should address the problem of high discrepancy rates. However, once again, the problem is access to this publication by the right people, and the proper and consistent application of its contents.

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