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Industry Standards for Trade and Supply Chain Finance
1. Industry Standards for Letters of
Credit, Guarantees and Open
Account
André Casterman
Head of Banking, Trade and Supply Chain – SWIFT
Co-Chair "Bank Payment Obligation" Project – International Chamber of Commerce
La Hulpe, 1 December 2011
2. Trends
Digitisation
Regulation Innovation
Collaboration
Industry Standards for LCs, Guarantees and Open Account 2
3. Industry standards
Developed by international standardisation bodies
• Trade Finance instruments
• MT standards
• ISO 20022 registration authority
• ISO 9362 BIC registration authority, …
• ISO 20022 Financial Industry standards
• ISO 9362 Business Identifier Code (BIC), …
Industry Standards are industry owned
and technology neutral
Industry Standards for LCs, Guarantees and Open Account 3
4. Issues with proprietary formats and rulebooks
Avoid proprietary solutions and vendor lock-in
• Some Trade Finance vendors have been trying to impose their proprietary
formats in the C2B trade finance space; such vendors intermediate the
corporate-to-bank contractual relationship by imposing their own rulebooks
• Corporates and banks adopting such formats are locked in into the vendor-
specific platforms; this increases operational risks for users as software
solutions should be independent of each other and interoperate using Industry
Standards
• Global Trade banks have resisted adopting those proprietary vendor solutions
as each implementation generates huge implementation and running costs
(software, legal, operational, technical); usually most fees are charged to the
banks whereas the main value proposition targets the corporates
• Due to customer pressure, some banks have been forced to implement those
formats and suffer from high vendor-specific fees and usage costs
• The benefits of multi-banking are therefore limited and never fully achieved
neither by corporates, nor by banks.
Industry Standards for LCs, Guarantees and Open Account 4
5. Best Practices for banks and corporates
Rules • ICC Banking Commission's rules
• SWIFT's MTs for LCs and Guarantees
Messages • ISO 20022 for open account
Identity • Business Identifier Code (BIC or ISO
9362) for banks and corporates
• SWIFT for bank-to-bank (FIN or TSU)
Channel • SWIFT or Internet for corporate-to-bank
• SWIFTReady vendors
Solutions • In-house development
Industry Standards enable banks and corporates to increase
efficiency when respecting all of the above best practices
Industry Standards for LCs, Guarantees and Open Account 5
6. 1
Industry Standards for LCs and Guarantees
MT798 Documents MT798 Documents
MT7xx
1 2 3
Buyer Seller
Buyer’s Seller’s
bank(s) bank(s)
SWIFT's MT7xx are industry owned, technology FIN MT7xx
neutral standards in support of ICC's UCP600 FIN MT798
and URDG758 rules
Industry Standards for LCs, Guarantees and Open Account FileAct 6
7. Corporate-to-Bank
Bank-to-Corporate
Applicant Import Documentary Credits Bank
IMPORT DOCUMENTARY CREDITS
MT 798<770>
APPLICATION
MT 798<700>
MT 798<701>
MT 798<771>
ISSUANCE NOTIFICATION MT 798<700>
MT 798<701>
MT 798<772>
AMENDMENT REQUEST
MT 798<707>
AMENDMENT NOTIFICATION MT 798<773>
MT 798<707>
AMENDMENT ACCEPTANCE NOTIFICATION
MT 798<736>
DISCREPANCY ADVICE MT 798<748>
MT 798<750>
MT 798<749>
DISCREPANCY ADVICE RESPONSE
COMPLIANCE ADVICE NOTIFICATION MT 798<753>
MT 798<754>
DISCHARGE ADVICE NOTIFICATION MT 798<731>
MT 798<732>
REFUSAL ADVICE NOTIFICATION MT 798<733>
MT 798<734>
MT 798<755>
PAYMENT ADVICE NOTIFICATION
MT 798<756>
Industry Standards for LCs, Guarantees and Open Y M E N T
I M P O R T P A Account SETTLEMENT ADVICE MT 798<757> 7
8. Corporate-to-Bank
Bank-to-Corporate
Bank Beneficiary
EXPORT DOCUMENTARY CREDITS
MT 798<774>
Export Documentary Credits
MT 798<700> CREDIT ADVICE
MT 798<701>
MT 798<776> AMENDMENT ADVICE
MT 798<707>
AMENDMENT ACCEPT/REFUSAL ADVICE MT 798<735>
MT 798<780>
MT 798<710> THIRD BANK ADVICE
MT 798<711>
MT 798<737> PRESENTATION RESPONSE
MT 798<751> A U T H O R I S A T I ON A D V I C E N O T I F I CA T I O N
MT 798<752>
MT 798<753> COMPLIANCE ADVICE NOTIFICATION
MT 798<754>
MT 798<731> DISCHARGE ADVICE NOTIFICATION
MT 798<732>
MT 798<733> REFUSAL ADVICE NOTIFICATION
MT 798<734>
MT 798<755> PAYMENT ADVICE NOTIFICATION
MT 798<756>
TRANSFER REQUEST MT 798<722>
MT 798<782>
MT 798<720> TRANSFER ADVICE
MT 798<721>
Industry Standards for LCs, Guarantees and Open Account P O R T P A Y M E N T
EX SETTLEMENT ADVICE 8
MT 798<758>
9. GUARANTEES / STANDBY LETTERS OF CREDIT Corporate-to-Bank
Bank-to-Corporate
Applicant Guarantees/Standby Letters of Credit Bank
MT 798<761 or 784 > APPLICATION
MT 798<760>
NOTIFICATION MT 798<762 or 785 >
MT 798<760>
MT 798<763 or 786 > AMENDMENT REQUEST
MT 798<767>
MT 798<764 or 787 >
AMENDMENT NOTIFICATION
MT 798<767>
EXTEND / PAY QUERY
MT 798<777>
MT 798<778> EXTEND / PAY RESPONSE
CLAIM NOTIFICATION MT 798<779>
CLAIM / CHARGES SETTLEMENT MT 798<781>
MT 798<783> REDUCTION / RELEASE REQUEST
REDUCTION / RELEASE ADVICE MT 798<766 >
MT 798<769>
Industry Standards for LCs, Guarantees and Open Account 9
10. GUARANTEES / STANDBY LETTERS OF CREDIT cont. Corporate-to-Bank
Bank-to-Corporate
Bank Guarantees/Standby Letters of Credit Beneficiary
MT 798<745 or 746 > ADVICE
MT 798<760>
MT 798<743 or 744 > AMENDMENT ADVICE
MT 798<767>
PAYMENT CL AIM MT 798<712>
MT 798<714> CLAIM ACKNOWLEDGEMENT
Industry Standards for LCs, Guarantees and Open Account 10
11. 23 banks adopting SWIFT's MT798
12 from the top20 Trade banks
Industry Standards for LCs, Guarantees and Open Account
11
12. Preparing the future for Guarantee &
Standby LC using ISO 20022
• Demand Guarantees & Standby LCs
• Identify all end-to-end business flows
– Corporate to bank
– Bank to bank
– Bank to corporate
• Agree on business content
– Create new ISO 20022 XML messages
– Define fields
• Validate
Industry Standards for LCs, Guarantees and Open Account 12
13. Drivers for ISO 20022 for Guarantees &
Standby LCs
• Evolution of the MT798 to the XML syntax
• Enrich the functionality and granularity
• Increased dematerialisation of trade documents
• Leverage technology advancements
• The release of URDG 758
• The creation of templates under ISP 98
• The desire to create efficiency and better STP
• Complete the full end-to-end flows
• Corporates want integrated dematerialised flows
combining structured data with attachments and
supporting local language character sets
Industry Standards for LCs, Guarantees and Open Account 13
14. 2
Public Domain
Industry Standards for supply chain finance
Bank
Payment
Obligation
1 2 3
Buyer Seller
Any channel / Trade Txn Any channel /
Commercial
any format / Matching any format /
any solution Scheme any solution
• Bank portal • SWIFT's Trade Services • Bank portal
• SWIFT's SCORE Utility (TSU) • SWIFT's SCORE
• Paper • Any inter-bank scheme • Paper
based on ISO 20022
messages & rules
Industry Standards for LCs, Guarantees and Open Account 14
15. The Bank Payment Obligation (BPO)
A BPO is an irrevocable undertaking
given by a bank to another bank that
payment will be made on a specified
date after successful electronic matching
of data according to an industry-wide set
of ICC rules.
Therefore, a BPO offers:
• An assurance of payment
• Risk mitigation for all parties
• Possible use as collateral for finance
An alternative ICC instrument for trade settlement
Industry Standards for LCs, Guarantees and Open Account 15
16. 18 banks adopting BPO in 2011
7 from the top20 Trade banks
Industry Standards for LCs, Guarantees and Open Account 16
17. The leading Trade Finance vendors
are accredited by SWIFT
SWIFTReady for
SWIFTReady SWIFTReady
Corporates –
Trade Finance Trade Services Utility
Trade Finance
• Bank-to-bank • Corporate-to-bank • ISO 20022 TSMT
• Corporate-to-bank • LCs and Guarantees messages
• LCs and • Bank Payment
Guarantees Obligation rules
Bank Corp • Open Account Bank
Vendor Trade Finance Vendor Trade Finance Vendor Trade Finance
Solution Solution Solution
China Eximbills GTC GlobalTrade ACI Open Account
Systems Corporate Manager
CSI BankTrade Misys Misys Trade China Eximbills
Portal Systems Enterprise
Misys Trade Innovation
Plus Pinnacle Synergy Trade CSI OpenTrade
Solutions Services (TS)
MIT CREDOC Misys Misys Trade
Incorporated Multi-bank
Portal
Sopra Evolan IB (PSI) Corporate Site
Surecomp DOKA 5, IMEX (Conformance
Industry Standards for LCs, Guarantees and Open Account Statement) 17
18. More info
• Join our "Supply Chain on SWIFT" group on:
• Join our frequent Webinars
• Email us at supplychain@swift.com
Industry Standards for LCs, Guarantees and Open Account 18