Q&A document on Bank Payment Obligation and Trade Services Utility

2011 Supply Chain Finance for Corporates webinars – Questions and Answers
A. Questions related to the presentation materials

QUESTION ANSWER DATE
A1 Can I have a copy of this presentation later? Copies of the presentation materials are circulated to those who attend 30/06/11
the webinars and then posted on our LinkedIn “Supply Chain on SWIFT” &
Group. We also run repeat webinars for people who may not have been 07/11/11
able to attend first time.
A2 We are interested to become a participant member for As a bank you must first register to the SWIFT Trade Services Utility 07/11/11
BPO (Bank Payment Obligations). How do we go forward? (TSU). You can register on-line via www.swift.com .The registration fee
varies according to the global tier of the bank. Once registered, Swift will
assist your bank to go live. For further information please email us at
supplychain@swift.com .
A3 What do you mean by (50EUR/Txn) lower rate of Operational savings will include a reduction in the number of 30/06/11
investigation under operational benefits? discrepancies thanks to an improvement in the matching rate that can be
achieved by electronic data presentation. By reducing the number of
discrepancies, banks and corporates will be able to reduce the
investigation effort, avoiding disputes, delays etc. Whilst the impact will
vary from business to business, the average savings are estimated at 50
EUR per transaction.
A4 Can you explain the reasons behind the risk differential Essentially there should be no difference between the BPO and the L/C in 30/06/11
between BPO & LC? terms of the ability to mitigate risk. The main difference today is that the
L/C has an established and proven track record whereas the BPO remains
in its infancy. The absence of a track record today in some cases inhibits
the acceptability of a BPO. This will only be addressed by building
confidence over time through increased commercial adoption.

B. Questions related to documentation

B1 Where can I find the BAFT-IFSA document in relation to In December 2010, BAFT-IFSA published a document related to standard 30/06/11
BPO? product definitions for open account trade processing and open account
trade finance (copy attached for reference purposes). The aim of the

Version of December 2011 Page 1


document was to promote the adoption of a common language. The
document does not explicitly reference BPO. SWIFT has taken those
BAFT-IFSA definitions and used them in relation to services that can
potentially be supported by BPO. Again this is all about promoting the
wider adoption of a common language.
B2 What SWIFT document includes the detailed description of See the TSU Service Description (copy attached for reference purposes). 30/06/11
the BPO?
B3 Have you any example of an agreement between the bank SWIFT does not provide copies of bank documentation. However, the 30/06/11
and its customer? For example : positive match = buyer TSU Service Description, chapter 8 (copy attached for reference
commits to pay the obligor's bank at the maturity date purposes) contains guidelines related to sample clauses that banks may
optionally wish to include in their customer agreements.
B4 Can I find BPO documents on swift.com or ICC.com? You can access further information related to TSU & BPO on swift.com. 30/06/11
Please visit www.swift.com/trade_services_utility and/or join our
“Supply Chain on SWIFT” community on LinkedIn.
B5 Is it possible to look through the main fields of the BPO? The documentation relating to the relevant tsmt messages can be 07/11/11
downloaded from the ISO web site www.iso20022.org. Go to the
catalogue of messages and find the tsmt messages. There is a PDF named
“Message definition report”. In the PDF look for a data structure named
“PaymentObligation”. This is the BPO data. It is in several messages, for
example in the InitialBaselineSubmission message (tsmt.019).
B6 Where are the BPO rules available from now? Are they free See the TSU Service Description, chapter 7 (copy attached for reference 07/11/11
or for purchase? purposes). This document is now in the public domain, and available free
of charge.

C. Questions related to costs/pricing

C1 What are the costs/expenses to be a TSU member? There is an annual subscription fee that depends on the global tier of the 30/06/11
institution. Details available from SWIFT on request. There is also a small
fee of 1.5 EUR/month for each live transaction. The fee is transaction
based not message based so an individual transaction may carry as many
messages as required at no additional cost. There is currently a



promotional period in force until end 2012 during which time the
transaction processing fee has been reduced by 50% to 0.75 EUR/month.
C2 Will SWIFT charge its bank customers for each BPO Yes. SWIFT normally charges its bank customers 1.5 EUR/month for each 07/11/11
transaction? Presumably banks expect to charge fees to live transaction. There is currently a promotion in force until end 2012
their customers? during which time this fee has been reduced by 50% to 0.75 EUR/month.
The banks will set their own tariffs when charging the corporate
customer. Those charges will vary from bank to bank.
C3 How much cheaper do you expect the BPO to be compared Product pricing is a matter for individual service providers to determine. 30/06/11
to the cost of LCs? SWIFT cannot comment on this.
C4 In term of costs, comparing BPO and LCs, do you agree that In terms of processing, we believe the BPO should cost less than the LC 30/06/11
the BPO transaction should cost less than LCs? Do you have because of the level of automation e.g. no manual checking of
an idea about the costs for BPO vs. LCs? documents etc but again individual banks must determine their own
pricing policy based not only on processing costs but quality of service,
business benefits, product packaging etc.
C5 How will BPO fees compare to unconfirmed documentary Each bank will set its own tariff. Charges will vary from bank to bank. 07/11/11
L/C fees?

D. Questions related to standards

D1 Is there any standard type of SWIFT messages already set A set of ISO 20022 messages has been developed for the TSU and BPO. 30/06/11
up for BPO? The relevant ISO 20022 tsmt messaging standards and related
documentation are available on the iso20022 web site, page “Catalogue
of ISO 20022 messages” tsmt.001-052. Please follow the link
http://www.iso.org/UNIFI_trade_services_messages.page .
D2 What message types and documents are supported in A set of ISO 20022 messages has been developed for the TSU and BPO. 30/06/11
BPO? The relevant ISO 20022 tsmt messaging standards and related
documentation are available on the iso20022 web site, page “Catalogue
of ISO 20022 messages” tsmt.001-052. Please follow the link
http://www.iso.org/UNIFI_trade_services_messages.page . The
documents supported as part of a TSU transaction are: purchase order,
commercial invoice, transport documents, insurance and certificates.



D3 Why would anyone want to extend 20022 to overlap the Users in different industries and operating in different geographies often 30/06/11
existing ANSI X12 (and EDIFACT) purchase order? Why not have different business requirements and preferences. This is all about
translate 850 into TSU? providing the user with choice. Translating 850 into ISO messages is also
an option to send to the TSU. No-one is forced to use one channel versus
another.
D4 I recommend against promoting the "minimum trade data" The “minimum trade data” point was developed because there was a 30/06/11
point, as banks must ask for more data than you wrong perception in the market that TSU messages are always very
mentioned in order to meet compliance rules - esp. OFAC. complex, while in fact the number of mandatory fields is very small. We
are simply getting across the limited amount of data that is mandatory in
the TSU. This does not prevent banks from including other data elements
as and when required in order to satisfy e.g. regulatory compliance.
D5 Is this available in FIN MT? No. The TSU uses a separate set of XML ISO20022 messages. 30/06/11
D6 Will there be specific FIN MTs replacing the rule of MT If the question is about replacement of Category 7 common group 30/06/11
7nn? messages (792, 795, 796, 798, 799) by more specific MTs, no such
development is planned. This question is in any case outside the scope of
TSU/BPO which uses XML ISO20022 messaging standards.
D7 Does BPO need MT7xx? Or is FIN messaging eliminated? In order to use a BPO today banks must be subscribed to SWIFT’s Trade 07/11/11
Does BPO substitute or complement MT7xx? Services Utility (TSU). The TSU does not make use of FIN messages so
there is no need for MT7xx. The TSU uses a separate set of XML ISO20022
messages.
D8 What exactly is agreed in the establishment of the The enforceability of a BPO ultimately depends upon the matching of 07/11/11
baseline? data. The establishment of the baseline will determine exactly what data
elements need to be matched in order for the BPO to be enforced. The
baseline will normally include information extracted from the purchase
order, details of the BPO (if any), payment terms and any other
processing requirements. For a complete description of the baseline, you
can download the documentation of the tsmt messages from the ISO
web site www.iso20022.org. Go to the catalogue of messages and find
the tsmt messages. There is a PDF named “Message definition report”. In
the PDF look for a data structure named “Baseline” e.g.
InitialBaselineSubmission message (tsmt.019).
D9 Who decides the amount of data to be matched? The amount of data to be matched is determined by mutual agreement 07/11/11
between the involved banks and is the result of the baseline



establishment process.
D10 Is there a pre-match status? Yes. It is possible to establish a pre-match status. Generally, after the 07/11/11
Trade Services Utility application compares data sets, it sends reports to
all of the involved banks notifying them of the results of the comparison
of the defined data elements. However, data sets can be submitted with
the instruction to “pre-match”, in which case only the submitting
financial institution will receive the results of the comparison. This is a
test. The status of the transaction does not change as the result of a pre-
match. Following a pre-match, data sets can be corrected if necessary.
The data set must be submitted with an instruction to match in order for
the transaction to progress.
D11 Is there a limit to how much data can be uploaded e.g. The Insurance data set contains a number of structured fields that can be 07/11/11
from insurance/certificates? matched by the matching engine (TSU), for example the InsuredAmount
will be matched against the value of the goods shipped (from the
invoice). There are also optional repeating fields for insurance clauses, so
almost all of the insurance document could be input in the insurance
data set, and forwarded to the other banks. However, it should be noted
that it is not the purpose of the TSU to replace the current flow of
documents between the parties to a commercial transaction. Sending
text to the TSU and to other banks in the transaction is not the intention.
The TSU does not match the text fields. You can download the
documentation of the tsmt messages for the Insurance or Certificate data
set from the ISO web site www.iso20022.org. Go to the catalogue of
messages and find the tsmt messages. There is a PDF named “Message
definition report”. In the PDF look for a data structure named
“CertificateDataSet” or “InsuranceDataSet. You can find it in several
messages, for example in the DataSetSubmission message (tsmt.014)
D12 Are there plans to standardise the required C2B Yes. The same messages that are used for bank to bank communication 07/11/11
communications under ISO 20022? (via the TSU) can also be used for corporate-to-bank messaging.
Guidelines have been developed for this purpose and are available for
viewing at http://www.swift.com/corporates/resource.htm
D13 Do carriers need to comply with the ISO 20022 tsmt Carriers may wish to implement ISO 20022 tsmt to deliver Bills of Lading 07/11/11
messaging format for Bills of Lading in order to feed the data to the banks. The banks will be required to transform such incoming



TSU/BPO process? data flows into ISO 20022 tsmt in order to deliver the transport data set
to the TSU. For details of what the data set message look like, please visit
the ISO web site at www.iso20022.org , go to the catalogue of messages
and find the tsmt messages. There is a PDF named “Message definition
report”. Here you can see how the transport data set format compares
with alternative forms of B/L.
D14 In a case where the LC requires groundnuts but the China In such a case, the TSU would generate a mismatch report. On receipt of 08/09/11
certificate of origin says peanuts, both groundnuts and this report the banks have the option to accept the mismatch. In other
peanuts refer to one and the same thing. In BPO this words, they can immediately say, yes the data does not match but I do
would be a valid discrepancy. How would BPO solve this not care. Carry on. The discrepancy can be resolved almost immediately.
problem?
D15 What type of requirements are there to satisfy the The baseline contains some minimum mandatory elements that must be 07/11/11
baseline? matched. These include essential data such as amounts, dates,
counterparty names etc Other data elements may be entered optionally
in those cases where a more detailed matching process may be required.

E. Questions related to legal framework

E1 Can you explain exactly what is meant by "ICC An ICC BPO Working Group has been officially established with a view to 30/06/11
endorsement of BPO"? recognising the BPO as an accepted market practice in much the same
way as the LC has become an accepted market practice with the support
of UCP. There are three main workstreams; legal framework, education
and commercialisation. The BPO adoption process will eventually result
in the publication by the ICC of a set of rules governing the usage of the
BPO (similar to but much shorter/simpler than UCP). The only material
difference between ICC rules and SWIFT rules is that SWIFT rules are TSU-
specific whereas ICC rules will eventually support market adoption of the
BPO regardless of any underlying technology.
E2 Is there an internationally accepted standard for the BPO The equivalent of UCP 600 for L/C in the case of the BPO is a set of rules 30/06/11
e.g. similar to UCP 600? Or does the legal enforceability of available in chapter 7 of the TSU Service Description (copy attached for
the concept need to be checked in each jurisdiction? reference purposes). The legal validity and enforceability of the BPO



under Belgian law has been independently examined and confirmed by a
law firm, Allen & Overy in 2008. A copy of this legal opinion is available
on request. In common with well established market practice, the BPO
Rulebook does allow participating banks the freedom to agree on the
choice of applicable law.
E3 Is there any international process standard to support BPO, The equivalent of UCP 600 for L/Cs in the case of the BPO is a set of rules 30/06/11
such as UCP600 to the letter of credit? If yes, can you available in chapter 7 of the TSU Service Description (copy attached for
describe the brief content or its work plan? reference purposes).
E4 What is the time period for ICC adoption of the TSU rule The ICC Banking Commission has developed a plan to adapt and adopt 30/06/11
book? What is the status of the ICC rules for the BPO? the existing BPO Rulebook which currently forms part of the SWIFT TSU &
Service Description. A dedicated working group has been set up to 07/11/11
execute that mission. It is anticipated that the ICC BPO rules will be
officially published by the ICC Banking Commission in Q1 2013. These
rules will be technology-independent. The only material changes that
need to be made relate to the availability of the BPO through alternative
technology platforms i.e. de-coupling the BPO from the mandatory use of
the TSU.
E5 If you look at reverse factoring: how does the BPO solution The issuance of a BPO is not dependent upon the purchase of invoices. It 30/06/11
help banks to overcome legal issues regarding the validity is an individual bank decision how to collateralise its exposure.
of the purchase of invoices?
E6 Does the ICC recognize BPO as a legally binding The BPO is a legally binding instrument as per the TSU Service 30/06/11
instrument? Description. It is not the ICC’s role to give the BPO legal recognition. The
ICC is a private international organization. It is not a governmental body
and therefore it does not make laws as such. It is the role of the ICC to
make available a set of contractual rules that will serve to establish
uniformity of practice so that practitioners do not have to cope with a
plethora of conflicting national regulations. The universal acceptance of
the UCP is a testament to the success of the ICC in establishing such rules
for the adoption of the L/C. It is envisaged that the ICC will make
available a similar set of rules that will enable the BPO to obtain universal
acceptance. However, the BPO is already a legally binding instrument.
E7 In terms of risk mitigation, do you agree that there is no Both the L/C and the BPO can be used (a) as a means of mitigating risk (b) 30/06/11
difference between BPO and L/C? providing the exporter with an assurance of payment and (c) as a form of



collateral for financing. The main difference today is that the L/C has a
long established track record of usage with proven reliability in the case
of dispute resolution. Relatively speaking, the BPO is still in its infancy.
E8 It is not clear to me who in the chain of the banks According to the TSU Rulebook “a financial institution assumes no liability 30/06/11
guarantees the correctness of the shipment of the goods or responsibility for the accuracy, genuineness, validity or legal effect of
as is the case in an export L/C where the exporter's bank any data received from its customer or any other party. However, a
verifies the truth and validity of the shipping docs. financial institution must ensure that the data it submits to the Trade
Services Utility application accurately reflects the data and information it
received.” In the case of a L/C, the bank does not verify the “truth” of the
documents. It checks that the documents are compliant “on their face”.
Under a BPO, the bank’s responsibilities are much the same.
E9 Under a BPO, the shipping documents are despatched The TSU supports the matching of data taken from the commercial 30/06/11
directly by the seller to the buyer. How will the buyer be invoice and transport documents to that established under the original
assured that the seller has shipped the goods in purchase order. With a BPO, the relevant data can be extracted from the
compliance with the purchase order? How does a BPO underlying transport documents and input into the TSU for matching. As
ensure that the electronic data exchanged is in line with with a L/C there is no way of checking beyond all doubt that the goods
the actual shipping documents? shipped are in line with what is described in the documents.
E10 What is the current status of BPO legal standing? The validity and enforceability of the BPO under Belgian law has been 30/06/11
independently examined and confirmed by a law firm, Allen & Overy in
2008. A copy of this legal opinion is available on request . Under the BPO
Rulebook, banks are allowed to agree on a different applicable law. For
such other jurisdictions, banks may wish to seek their own legal advice on
the equivalent validity and enforceability of a BPO.

E11 Does the Seller’s Bank have an obligation to pay, or only Under a BPO, the Obligor Bank (which is often but not always the Buyers 07/11/11
the Buyer’s Bank? Bank) carries the obligation to pay the BPO Recipient Bank (which is
always the Sellers Bank). The obligation of the Seller’s Bank to pay the
seller is outside the direct scope of the BPO and will be covered
separately in the related agreement between the bank and the customer.

E12 If the Buyer’s Bank does not perform in a timely manner, is No. The BPO relates only to the obligation of the Obligor Bank (often but 07/11/11
there an obligation on the part of the Seller’s Bank to pay not always the Buyers Bank) to pay the BPO Recipient Bank (always the
the seller? If the Buyer’s Bank goes bankrupt, would the Sellers Bank). However, under the service agreement between the



Seller’s Bank be obligated? Seller’s Bank (BPO Recipient Bank) and the seller, the former may have
taken on certain commitments which go beyond the BPO rules.
E13 If the buyer does not pay, who is responsible to pay the The only obligation arising from a BPO is that of the BPO Obligor Bank to 07/11/11
seller? Obligor Bank or Recipient Bank? pay the BPO Recipient Bank. The obligation of the BPO Recipient Bank to
pay the seller as ultimate beneficiary will be covered in the underlying
agreement between bank and customer.

E14 If the Obligor Bank does not pay, is there any payment No. The only obligation arising from a BPO is that of the BPO Obligor 07/11/11
obligation from the BPO Recipient Bank to pay the seller? Bank to pay the BPO Recipient Bank. The obligation of the BPO Recipient
Bank (Seller’s Bank) to pay the seller is outside the direct scope of the
BPO and will be covered separately in the related agreement between
the bank and the customer.

E15 BPOs seem to be tied to individual transactions, similar to No. BPOs are primary payment obligations linked to individual 07/11/11
documentary L/Cs. Alternatively, could BPOs be provided transactions. In this respect, they are similar in nature to commercial
which act in a way similar to Standby L/Cs? letters of credit and not standby L/Cs.

E16 Do providers of 3rd party documents such as bills of lading In some cases a primary bank e.g. the Seller’s Bank may wish to invite 07/11/11
need to agree to the BPO format? another bank (or branch of the same bank) to submit data sets (such as
transport data) on its behalf. In this case, the other bank/branch will
assume the role of a Submitting Bank and will be party to the transaction.
As such, the Submitting Bank must explicitly accept its role and
responsibilities in accordance with the terms of the established baseline
which includes the BPO. However, in the case of a baseline amendment a
Submitting Bank is not required to accept such amendments.

E17 If mismatches are not agreed or cleared when will the BPO If mismatches are not agreed i.e. are explicitly rejected, then no payment 07/11/11
expire? is due. Data will have to be re-submitted. If no response is provided by
the party that must accept or reject the mismatches, the TSU matching
engine will consider that the mismatches have been implicitly rejected
after a specified timeout. In any case, and independently of the above,
the BPO will always contain an expiry date. Any amount due under a BPO
for which conditions have not been met is no longer available after



23:59:59 UTC on the expiry date in the established baseline.

E18 How are disputes between buyers and sellers handled? Disputes between buyers and sellers are outside the scope of the BPO. 07/11/11
What if there are disputes after payment has been The BPO is a bank to bank obligation only.
executed?
E19 How would a BPO prevent the shipment of rubbish or no The BPO does not of itself prevent fraud. Banks submitting data to the 07/11/11
goods at all? Hackers may create a fake e-bill of lading or e- TSU are under a duty of care to ensure that the data is complete and
air waybill. How would the BPO prevent this? accurate and is consistent with the underlying documentation related to
the shipment. This does not altogether eliminate the risk of fraud. Banks
will be required to carry out the same KYC/compliance checks as now.

E20 How would the BPO handle the sanctions clauses that are Sanctions screening must be performed on all BPO/TSU transactions. This 07/11/11
so common in L/Cs nowadays? is outside the direct scope of the TSU matching engine and should form
part of the banks’ standard operating procedures. All parties to a
BPO/TSU transaction will have access to the same level of information for
screening purposes. Furthermore, each bank should take a view as to
how it wants to behave towards sanctions clauses in contracts.
E21 Is BPO going to replace eUCP? How would you position The construction of the ICC BPO rules will include a cross-reference to 07/11/11
BPO versus eUCP? Is there any intention to integrate? elements of both UCP and eUCP in order to ensure consistency. It is
possible that some clauses from the eUCP may be integrated with the ICC
BPO rules. However, the scope of the two sets of rules is different. The
eUCP is a supplement to UCP designed to accommodate the presentation
of electronic records (e.g. scanned images) under a letter of credit. The
eUCP will continue to exist in its own right alongside ICC BPO rules. An
additional advantage of the BPO is that it is underpinned by ISO 20022
messaging standards enabling fully automated data processing.
E22 What is the difference between a BPO and a L/C using The letter of credit and the BPO represent two alternative methods of 07/11/11
eUCP? How can transport documents like a bill of lading payment. Where a letter of credit allows the presentation of electronic
be handled under BPO? records the related terms of payment will be governed by eUCP as a
supplement to UCP. If a BPO is used, the related terms of payment will be
governed by the ICC BPO rules. In this case, the proposition is enhanced
by the automated matching of data. Transport documents like bills of
lading will provide a source of such data to populate the fields that are



included in the transport data set. The information in the transport data
set is matched against information in the baseline and other data sets. In
this case, the transport (routing) information in the transport data set is
matched against the corresponding transport (routing) information in the
baseline.
E23 To what extent and where do you see a risk of fraud in The risk of fraud exists no matter what the method of payment may be. 07/11/11
TSU/BPO? The best protection against fraud in all cases will be KYC. Just as a bank
deals in documents under a L/C, so a bank deals in data extracted from
those same documents under a BPO. If the documents are false, the data
will be false. In neither case would a bank concern itself with the
underlying goods.
E24 Is the handling of mismatches in BPOs comparable to the A mismatch in the TSU is comparable to a discrepancy in a L/C. In both 07/11/11
handling of discrepancies in L/Cs? Or are these subject to cases, the information presented is inconsistent with what is expected.
technical/non-documentary mismatching? Who is judging In the case of the TSU/BPO data is matched automatically. The result is
what is a mismatch? In LCs, guidance on discrepancy instant and very clear. Either the data matches or it does not. If there is a
handling is given under UCP 600 and ISBP. mismatch the involved banks are given the opportunity to accept or
reject the mismatch. If the mismatch is accepted the transaction can
continue unabated. If the mismatch is rejected then data must be re-
submitted in order to obtain an acceptable match.
E25 How are “discrepancies” handled in the BPO process? A discrepancy in a L/C is handled as a “mismatch” in a BPO. In both cases, 07/11/11
Please contrast with how discrepancies are handled in the the information presented is inconsistent with what is expected. In the
L/C process. case of the TSU/BPO data is matched automatically. The result is instant
and very clear. Either the data matches or it does not. If there is a
mismatch the involved banks are given the opportunity to accept or
reject the mismatch. If the mismatch is accepted the transaction can
continue unabated. If the mismatch is rejected then data must be re-
submitted in order to obtain an acceptable match. The automated
matching process removes the subjectivity commonly associated with
manual processing, hence reducing the risk of delays, disputes etc.
E26 Is it always necessary to have an agreement between All banks participating to a BPO/TSU transaction must subscribe to the 07/11/11
banks? TSU service and in so doing accept the terms set out in the TSU Service
Description. The establishment of a baseline represents the agreement
between banks for any given transaction. There is no need for bilateral



agreements to be negotiated separately between banks. The TSU Service
Description which includes the Rulebook is a multilateral contract
between all participants.
E27 It seems that the bank issuing the BPO may itself be a risk. The BPO is a bank to bank obligation. As such a BPO Recipient Bank may 07/11/11
Under L/C, we can use a confirmation to cover such risk. Is be taking on the risk that the BPO Obligor Bank does not pay. Since the
there a similar approach available here? BPO is bank to bank only the BPO cannot be “confirmed” in the same way
as a L/C can be confirmed. However, the exact terms of payment would
normally be covered in the Bank/Customer Agreement. This means in
effect that in all cases that the seller’s own bank (which is always the BPO
Recipient Bank) will be the bank that “confirms” payment to the seller.
E28 Can a BPO be transferred or assigned like LCs? No. A BPO is a bank-to-bank obligation. As such, payment will be made 08/09/11
from a BPO Obligor Bank (often but not always the Buyer’s Bank) to a
BPO Recipient Bank (always the Seller’s Bank). The Seller may instruct the
BPO Recipient Bank separately to execute payment in favour of a third
party assignee who may have been responsible for the actual delivery of
goods.
E29 What is the role of the recipient bank, a nominated bank or 1) The BPO Recipient Bank is always the Sellers Bank and will always 08/09/11
a confirming bank in UCP 600 context? be the beneficiary of the BPO.
2) Physical documents are not presented to the bank so the role of
a nominated bank does not apply. It is possible for a bank other
than the Buyers Bank to act as the BPO Obligor Bank. It is also
possible for a bank other than the Seller’s Bank to act as a
Submitting Bank (submitting data on behalf of the Seller’s Bank).
3) A BPO is a bank-to-bank obligation. The BPO Recipient Bank
which is always the Seller’s Bank will always take on the role of
“confirming” payment to the seller in a separate Customer
Agreement.
E30 What is the maximum number of days for advice of non BPO rules only refer to terms between banks i.e. the BPO Obligor Bank(s) 08/09/11
compliance from paying bank to recipient bank and from and the BPO Recipient Bank. It is the TSU that will generate the match
recipient bank to seller? report indicating whether a data set matches (i.e. is compliant) or not. In
case of non-compliance, i.e. data mismatches, the BPO Recipient Bank
(which is always the Seller’s Bank) and the BPO Obligor bank (if it is the
Buyer’s Bank) are informed at exactly the same time. The Buyer’s Bank



then has to accept or reject the mismatches. As soon as they reject or
accept, the Seller’s Bank will be informed. If they do not accept or reject,
the TSU will send “action reminder” messages every 7 days until the
situation is resolved, or the transaction is closed for inactivity (under the
life time expiry timeout). Terms between BPO Recipient Bank and seller
will be included in the bank/customer agreement which is outside the
direct scope of the TSU/BPO rules.
E31 In the BPO Rule book, is there anything like preclusion Article 16f of UCP precludes a L/C issuing bank from claiming that 08/09/11
provisions as in UCP 600? documents are not compliant if that bank fails to act in accordance with
the provisions of the Article. There is no parallel situation with BPO since
data is presented and matched electronically. Discrepancies are
represented as mismatches which can be accepted or rejected
automatically. A BPO Obligor Bank cannot refuse to honour a BPO when
the data presented matches i.e. it is compliant with the terms of the BPO.
So it is automatically precluded from claiming non-compliance.
E32 Is there any amendment in BPO as in UCP 600? Yes. The BPO forms an optional part of a TSU baseline. It is, possible to 08/09/11
amend a BPO in an established baseline provided the involved banks
agree. In the case of multiple obligor banks, each bank just affirm its
continued role in light of the amendment.
E33 Is it necessary for the seller to confirm acceptance of the The seller is not a direct party to the BPO. It is the Seller’s Bank that must 08/09/11
amendment before presentation or there is no such need accept any amendments on behalf of the seller.
until presentation of data from seller, working like UCP
600?
E34 Is BPO bank-to-bank reimbursement under URR525 or In a single TSU transaction it is possible to have multiple BPOs issued by 08/09/11
adapted version thereof? multiple BPO Obligor Banks. Each BPO is the obligation of one Obligor
Bank only. The Buyer’s Bank does not have to be an Obligor Bank. If
multiple obligor banks are involved, the amount due by each is
proportional to its share of the total of all BPO amounts. The role of a
reimbursing bank does not apply in the sense that one BPO Obligor Bank
would be obliged to pay if another BPO Obligor Bank failed to do so.
E35 Could I get a copy of the current BPO rules? Will the ICC be The current BPO rules are included in Section 7 of the TSU Service 07/11/11
changing the rules or will they be exactly as they are now? Description. The ICC version of the rules will be entirely consistent
though not completely identical to the existing rules. The main change is



that the ICC rules will be industry-owned and therefore technology-
neutral. In other words, all direct references to the TSU will be removed
so that in theory at least it would become technically possible to transact
a BPO across an alternative technology platform.

F. Questions related to accounting policy & capital treatment

F1 Is the BPO an off-balance sheet solution for the sellers? From an accounting perspective, the BPO should be treated in a manner 30/06/11
similar to a letter of credit. Whether the BPO has to be reported on or off
balance sheet will depend on its economic substance during its lifecycle
and the uncertainty levels in terms of causality, timing and valuation of
the obligation. The BPO constitutes a definite undertaking of the issuing
bank, provided that the stipulated data is presented in accordance with
the agreed BPO rules. At the time of confirming its role, the issuing bank
(usually the importer/buyer’s bank) will record the BPO as a contingent
liability in the off-balance sheet notes. Subject to the agreement made
between the issuing bank and the importer/buyer, the importer/buyer is
likely to mark a direct liability whilst a “confirmed” BPO would represent
an asset to be reported in the balance sheet of the exporter/seller. Once
the submitted BPO information is compliant and no discrepancies have
been found, the obligation of the issuing bank becomes a direct liability.
If an acceptance is discounted, the exposure becomes a cash item
recorded as a loan/advance with recourse to the corporate. From that
point on, the importer/buyer would report the BPO as an off-balance
sheet liability in the notes. At this point it moves from being an unfunded
obligation to an actual funded obligation for the issuing bank, and from a
funded obligation to an unfunded obligation for the importer/ buyer.
F2 What is the balance sheet treatment for the buyer when See answer to question F1 30/06/11
getting BPO issued? Is it non-funded bank borrowing?
F3 Accounting: is BPO an off balance sheet instrument? See answer to question F1 30/06/11
F4 Regarding regulatory impact, as documentation has Since the BPO today has no track record of usage, it is difficult to predict 30/06/11



dematerialized for open account & supply chain financing, the approach of regulators. The electronic data submitted as part of the
have you seen any trend emerging in keeping regulators TSU/BPO transaction will contain all relevant information extracted from
comfortable? For example, lack of B/L's would not provide the underlying transport documents etc and should therefore constitute
sight into potential violations. a sound basis for regulatory reporting, if required. At the same time,
actual documents can still be exchanged physically or electronically, in
parallel to the BPO data exchange.
F5 With the capital treatment of the BPO being treated the We expect the capital treatment of the BPO to be the same as that of a 30/06/11
same as a commercial letter of credit by most banks, how commercial letter of credit. Whilst the capital costs for the BPO and letter
do you see the BPO as being a much cheaper alternative to of credit would be similar, we expect the processing costs for the BPO to
the L/C? be significantly cheaper than for letter of credit, thanks to the electronic
data presentation and matching.
F6 US Importers must report Letter of Credit liabilities on their See answer to question F1 30/06/11
Balance Sheets as a type of "debt". How will Importers
account for BPOs?

G. Questions related to usage

G1 What is the development need on the bank's side? Banks will typically start by processing limited volumes on a semi-manual, 30/06/11
semi-automated basis using a free piece of standalone software, the TSU-
Interface, supplied by SWIFT. Over time and once the business case has
been made, banks would normally want to invest in back office
integration in order to automate the workflow in support of enhanced
STP. The size and effort of such a development project will vary from
bank to bank. It may be done in-house or by licensing software from an
accredited vendor such as Misys, China Systems, CSI Banktrade or ACI.
G2 Can it work on a manual basis for a limited number of Yes. Banks will typically start by processing limited volumes on a semi- 30/06/11
transactions? manual, semi-automated basis using a free piece of standalone software,
the TSU-Interface, supplied by SWIFT.
G3 Is BPO part of the SCORE or MA-CUG proposition? The BPO is a bank to bank obligation which is offered as part of a bank to 30/06/11
bank service, currently available via a bank to bank application called the
Trade Services Utility (TSU). So the short answer to the question is no



since SCORE/MA-CUG relates to corporate to bank communications over
SWIFT. In the case of BPO, the corporate does not have to be ASWIFT
user. However, the corporate-to-bank flows related to BPO transactions
could be transacted by banks and corporates on SCORE or within MA-
CUGs if that is their preference. The files can be structured in any format
between banks and their customers. SWIFT developed some guidelines
enabling corporates to make use of the same ISO 20022 messaging
standards as are used by the banks in the TSU. Those messages could
optionally be delivered to the bank in standard format e.g. via SCORE.
Those guidelines are available for viewing at
http://www.swift.com/corporates/resource.htm

G4 Does BPO include the credit documents collection? The TSU deals in data not documents. A BPO is an optional block of data 30/06/11
incorporated in a TSU message called the baseline. The block of data
specifies the matching conditions that must be met in order for the BPO
to be enforced.
G5 Are all the documents e.g. Bill of Lading etc electronic in The TSU deals in data not documents. Relevant data elements are 30/06/11
BPO? extracted from the underlying documents and mapped into standardised
data sets including commercial, transport, insurance and certificates.
Documents may still be exchanged physically or electronically as required
outside the TSU.
G6 How many banks are supporting BPO today? There are currently around 90 banks in 31 countries subscribed to the 30/06/11
TSU (see attached).
G7 My understanding for BPO is that both buyer bank and Yes, both buyer’s bank and seller’s bank must be enrolled to the TSU. See 30/06/11
seller bank should enrol to this service. What is the existing attached document for a summary of banks currently subscribed.
bank footprint supporting this?
G8 Is there any provision for the number of BPOs in, say,2012? No. We expect volumes to evolve as market awareness grows. 30/06/11
G9 If document matching will be at a minimum it means that A transaction is established in the TSU through the matching of data 30/06/11
there will be no place for discrepancies like the old L/C's? taken from the PO. This is called a baseline. Within the baseline, there is
So if the POs are matched and quality & quantity of goods an option to include a BPO and the terms and conditions that need to be
match, what if certain documents to be presented under met in order for that BPO to be enforced. If data is not presented in
the BPO are not presented as required? Will it be a accordance with the terms specified in the baseline, the issuing bank can
discrepancy? either decide to accept the mismatches (discrepancies) or reject the



mismatches in which case the BPO is not enforceable. The simplicity is
that the checking of data can be limited to those elements that are
directly relevant to the decision-making process and that in a data
matching process, either there is a match or a mismatch, thus removing
the subjectivity associated with manual processing.
G10 What happens if data are not fully compliant? Can the If the data is not fully compliant it will result in a mismatch which can 30/06/11
obligor raise discrepancies? either be accepted or rejected by the Obligor Bank.
G11 From the answer I am hearing, there is a RMA/Key No. TSU banks do not communicate with each other directly but via the 30/06/11
exchange required to establish bank to bank BPO TSU application which sits on the SWIFT network. Consequently, no RMA
relationship? keys have to be exchanged between the banks. The BPO is established as
part of a transaction in the TSU. It can optionally be included in the TSU
baseline at the start of the transaction or added at a later stage during
the transaction lifecycle.
G12 What is the minimum number of operations to be handled There are no minimum/maximum limitations. Some users have low 30/06/11
to subscribe to this service? volumes of high value transactions whilst others have higher volumes of
typically lower value transactions.
G13 Could you advise the names of the participating banks? The list of participating banks is attached for reference purposes. 30/06/11
G14 Can a corporate act like a bank in BPO (TSU?) and do for The TSU is a bank to bank application. It is only accessible to banks acting 30/06/11
example pre-financing with their suppliers? on behalf of their corporate customers. The bank can engage in pre-
shipment finance on behalf of its customer.

G15 I would like to know how you see the BPO processing Data processed via the TSU will specify terms and conditions for payment 30/06/11
procedures, compared to LCs. When you have a including the due date. The payment does not have to be processed
transaction on at sight basis and the documents will take unless/until the specified terms and conditions have been met. There is
about one week to be received by the buyer, for example? not really any difference here compared to L/C except of course that the
Will the payment be processed anyway? data will be made available electronically.

G16 I still see unclear why the importer would commit to the It is a business decision as to whether the confirmation of a purchase 30/06/11
payment of a PO (which can be cancelled, supplier may not order represents sufficient grounds to support a proposition for pre-
perform, etc.). How could I convince the importer of the shipment finance. This is typically regarded as higher risk than an offer of
advantages of confirming the PO? post-shipment finance based on a confirmed invoice. In some cases the
importer may wish to support the supplier’s short-term working capital
financing needs in order to secure the supply chain. It is all a matter of



risk management.

G17 Will there be an open list of participating banks? The list of participating banks is attached for reference purposes. 30/06/11
G18 In post shipment SCF, the credit is offered to suppliers by It’s true that we are talking here about a 4-corner versus 3-corner model. 30/06/11
the buyer's bank based on the buyer's credit rating. This is Often there will be instances where a Buyer’s Bank cannot fully
how the supplier gets financing at a much cheaper rate implement a 3-corner approach because of limited reach so the 4-corner
that what they would get from their local bank. How do we is needed in order to facilitate a complete service. In such cases, the BPO
provide this benefit under the BPO model where you is issued by the Buyer’s Bank (or possibly by a third party bank) in favour
encourage the supplier to work with its own bank? of the Seller’s Bank. Therefore, in financing the seller the Seller’s Bank is
relying on receiving payment from the BPO Issuing Bank provided of
course the seller can fulfil its contractual obligations. If this is treated as a
bank risk (i.e. the risk is on the BPO Issuing Bank) it can have a positive
influence on the Seller’s Bank’s pricing model. In some cases, the
financing proposition may rely on some form of collaboration between
the BPO issuing Bank and BPO Recipient Bank.

G19 I am a seller. If I wanted to ask a buyer to commence using Commercial pricing of competitive offerings is a matter for the banks to 07/11/11
BPO versus L/C, what are the key features of a BPO which decide. It will vary from bank to bank. If you are a seller, the BPO
would make it attractive to the buyer to use the BPO discussion with your customers is likely to revolve around processing
versus an unconfirmed L/C i.e. how do costs compare etc? efficiency. For example, physical documents will not be required to pass
through the banking system as they do today under a L/C. Data
matching is performed electronically reducing the related risks of
discrepancies, disputes, delays, demurrage charges etc.
G20 Unlike a conventional L/C arrangement, is it correct that no Correct. No physical documents are required to be routed through the 07/11/11
documents will be sent to the banks? banking system. With a BPO, the banks deal in data, not documents.
G21 Must a BPO always start from a PO or can it start from an The TSU/BPO transaction always starts with the establishment of a 07/11/11
Invoice? baseline i.e. an agreed position that is shared between the involved
banks. Most of the time, a baseline would be established using data
taken from the PO. However, it is technically possible to establish a
baseline using data taken from the commercial invoice.
G22 Is Bolero planning to get a BPO certificate? Bolero is not a registered software partner of Swift. Today, Swift is not 07/11/11
aware of any plans Bolero may have regarding the BPO. If Bolero would
wish to become BPO-certified they would first need to join the Swift



partner programme and then develop the requisite messaging using ISO
20022 open standards. Provided Bolero could then satisfy Swift criteria,
both technical and functional, they would qualify for a certificate.
G23 Do we need a BPO Recipient Bank if the Obligor Bank is There is no direct dependency between the issuance of the BPO in favour 07/11/11
initiating payables financing or receivables financing to the of the Recipient Bank and the provision of finance to the obligor.
obligor? However, some banks have elected to package their solutions in such a
way that these services can be combined. In other words, the Obligor
Bank issues the BPO on behalf of the obligor in order to provide the seller
with an assurance of payment/access to finance whilst at the same time
offering extended payment terms to the obligor/buyer.
G24 Can SMEs handle BPO operations with no need to ask a A BPO is a bank to bank obligation. To execute a BPO both the Obligor 07/11/11
BPO service provider? and the Recipient must be banks. So corporate of all shapes and sizes
would always have to work with a bank of their choice to act as either
Obligor or Recipient.
G25 Is it correct that there is no step for the buyer to The baseline acts as an agreement between banks specifying the data 07/11/11
confirm/approve the invoice? Buyers are only notified of that has to be presented in order that the BPO becomes enforceable.
invoice submission by the seller? Therefore, the buyer can Thereafter, if the commercial data set contains zero mismatches there is
only validate the PO? no explicit step that additionally requires the buyer to confirm/approve
the invoice data that has been presented since the data fully conforms to
the terms of the original agreement i.e. there are no discrepancies
between the invoice and the PO. However, if the commercial data set
contains mismatches, these would be routinely referred to the buyer for
acceptance/rejection.
G26 Is there information in the payment instructions to match There are two places where payment terms may be specified. The first is 07/11/11
the appropriate BPO message? a mandatory field in the payment terms section of the baseline. The
second is an optional field in the BPO section of the baseline. If the
payment terms are missing in the BPO section of the baseline then the
terms used in the mandatory payment terms section of the baseline will
apply.
G27 Is there any confirmation of a BPO, as with a L/C? Because a BPO is a bank to bank obligation then technically it cannot be 07/11/11
“confirmed” in the same way as a L/C might be confirmed. The obligation
of a BPO Recipient Bank (Seller’s Bank) tro pay the seller as ultimate
beneficiary will be covered in the underlying bank/corporate agreement.



G28 Is there such a thing as a transferable BPO, as in L/C? No. The beneficiary of a BPO will always be the Seller’s Bank not the 07/11/11
seller so transferability is not an option. The seller can however instruct
the Seller’s Bank to pay a third party who may have been acting as an
agent for the actual delivery of goods.
G29 What is the difference between a L/C and a BPO? A L/C requires physical presentation of documents through the banking 07/11/11
system. Under a BPO those physical documents will be sent directly from
seller to buyer, as in an open account transaction. However, selected
elements of data which have been extracted from the documents will be
routed through the banking system for the purposes of automated
matching in order to mitigate risk and to support the value proposition
for a financial service e.g. pre-or post-shipment financing.
G30 Is there an option to provide finance to the buyer? A BPO Obligor Bank could offer extended payment terms to the buyer. 07/11/11
This sometimes forms part of a “packaged” solution offered by the bank.
G31 Is there an option to support reverse factoring/confirming? Reverse factoring/confirming is most commonly a 3-corner model 07/11/11
proposition requiring one bank only. A BPO will be more relevant in a 4-
corner model based upon an exchange of data between two banks, one
acting on behalf of the buyer and the other acting on behalf of the seller.
Service providers could use the TSU as a matching engine in support of a
reverse factoring/confirming proposition but if only one bank is involved
there is no requirement/role for a BPO.
G32 Does this BPO solution only work well for buyers & sellers Not necessarily. Whatever the relationship between buyer and seller 07/11/11
with an established trading history? there will be alternative options available when negotiating payment
terms. Some will favour L/C ; some will favour OA ; some will favour
payment guarantees/standbys ; the BPO represents another option on
the menu. The choice of one method over another is not solely
dependent upon how well buyers and sellers know each other.
G33 How relevant would the BPO be for SMEs taking into See G32 above. The BPO is another option on the menu. Generally, there 07/11/11
account the complexity of the instrument? Wouldn’t it be will be propositions that revolve primarily around large exporters (e.g.
much simpler to just open a L/C? BPO seems more suitable payment assurance) or large importers (e.g. to support pre-or post-
for large corporations with established partners. shipment financing to their suppliers). In either case, there may be a SME
at one end of the supply chain, acting either as a customer of a large
exporter or a supplier to a large importer. In operational terms, the
process should be somewhat simpler and more efficient for a BPO than it



is for a L/C since we are dealing in data and not documents.
G34 How many BPO transactions have been done so far in Very few live transactions have been completed so far today. Most 07/11/11
2011? participants remain in test/proof of concept mode. The volume is
expected to grow in light of increased awareness in the market and
driven by corporate demand.
G35 Will the BPO be a good alternative for documentary A documentary collection may be regarded as a more secure alternative 07/11/11
collections as well? If yes, what about physical documents? for the seller compared to trading on open account, but less secure than
a L/C. The BPO would be more secure than a documentary collection
since there would be an obligation to pay. This obligation would be based
upon the presentation of data through the banking system rather than
physical documents. The documents would be sent directly to the buyer.
G36 Are you aware of any customer/vendor using SAP ERP that Corporates using SAP ERP are adopting BPO. Standards have been 07/11/11
has implemented this solution? developed to support corporate to bank messaging in support of this.
However, we are not aware of any development work having yet been
scheduled by SAP. This is not a barrier to adoption since there are
middleware solutions available in the market today which can easily
translate messages to/from the required standards.
G37 With BPO, are documents sent electronically? Is it still Data extracted from the documents is exchanged electronically via the 07/11/11
necessary to mail originals? banks. The physical documents will still sent by mail. These documents
do not need to pass through the banking system.
G38 How will BPO affect factoring/reverse factoring? Is there Factoring and reverse factoring are alternative banking solutions that can 07/11/11
an overlap in banking products? be offered without the use of a BPO. It may be possible in some instances
to enhance the value proposition for a factoring service with the addition
of a BPO. For instance, factoring is a post-shipment offering based upon
invoice discounting. A BPO can support financing propositions across the
entire transaction lifecycle. Other differences include: the processing of
factoring transactions is largely manual, BPO is fully automated; with a
BPO you can obtain 100% financing, with factoring solutions it is always
<100%; factoring is a corporate risk taken on a portfolio basis whereas
BPO is a bank risk taken on a transaction basis; factoring can be
with/without recourse, BPO is always without recourse. Reverse
factoring is normally reliant on a 3-corner model involving one bank only,
forcing customers to make use of closed proprietary platforms and



solutions whereas BPO is based upon a 4-corner model making use of an
open collaborative messaging platform.
G39 Does BPO provide for credit lines between banks? The marking of credit lines/limits falls within the operating procedures of 07/11/11
individual banks.
G40 Has any survey been done that describes what corporates The only official survey that has been conducted (in 2011 by Aite Group) 07/11/11
are requesting and demanding from the TSU/BPO. What I was addressed to bank respondents only. It was considered premature
am after is statements and facts of why corporates have to survey corporates given relatively low levels of awareness. However,
shown interest in the BPO, as this will support our some corporates who took part in Sibos 2011, for example Vale (Brazil)
discussion with clients and stakeholders regarding the BPO. and BP Chemicals, have made public statements about the potential
business benefits of using BPO. From the exporter perspective the case
focuses on assurance of payment, having access to alternative forms of
finance, reducing costs and improving process efficiency. There are
quantifiable benefits in terms of reduced DSO. From the importer
perspective the case focuses more on securing the supply chain and
improving process efficiency.
G41 Can BPO be used to effect 4 different payments (1) from It is possible to have multiple BPOs in a single TSU transaction. However, 08/09/11
buyer to middle man (2) who pays to a broker (3) who pays there can only be one beneficiary (the Seller’s Bank) so the BPO might be
to supplier (4) who pays to a manufacturer, using one and used to trigger (1) but subsequent payments between (2) (3) and (4)
the same BPO instead of 4 BPOs? would be outside the direct scope of the TSU and the BPO.
G42 80% of trade is from SME who cannot afford to employ a SMEs can often work with software partners who will act as a kind of 08/09/11
technical officer to handle EDI messages or BPO messages service bureau for the purposes of preparing and processing the data.
or operations. Is there any service company to provide There are also bank portals available to support e-trade services for LCs,
data input and other operational services for SME for a guarantees, BPOs etc.
fee?
G43 Does BPO allow use of software from other companies, Software partners like China Systems have developed applications that 08/09/11
such as China Systems instead of TSU? are complementary to TSU. Those partners can process the data on
behalf of the banks/corporate but the data must go through the TSU for
the purposes of matching and report generation. Third party systems will
not perform the data match.
G44 What (stepwise) does the importer’s bank, already on In order to make use of a BPO, both the importer’s bank and the 07/11/11
SWIFT, need to do to transition from Bills for Collection/ exporter’s bank must be registered to the TSU. From that point on, we
Letters of Credit to Open Account + BPO. Here the consider three levels of readiness: technical, operational and commercial.
assumption is the exporter’s bank is already ready to go. Technical readiness refers to the ability to generate, receive and process


Q&A document on Bank Payment Obligation and Trade Services Utility

Q&A document on Bank Payment Obligation and Trade Services Utility

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Q&A document on Bank Payment Obligation and Trade Services Utility