Introduction to the contractual aspects of the BPO

Introduction to the contractual aspects

of the BPO

August 2014

Agenda

BPO impacts on contracts

Corporate-to-corporate

space

Corporate-to-bank space

Bank-to-bank space

BPO impacts on contracts

Seller’s bank Buyer’s

bank

Buyer

How can corporates include

BPO as payment term in their

sale contracts?

How can

banks add

BPO in their

C2B trade

contracts?

How can

banks add

BPO in their

C2B trade

contracts?

BPO impacts on contracts

Correspondent banking contract

Agenda

BPO impacts on contracts

Corporate-to-corporate

space

Corporate-to-bank space

Bank-to-bank space

Sale contract between buyer and seller

BPO has become a new option

in the ICC Model International

Sale Contract

ICC Model

International Sale Contract

Art 5.5:

If the parties have agreed on

payment against the security of

a BPO, then, unless otherwise

agreed, the Buyer must arrange for

the Seller to receive an assurance of

payment in accordance with the

agreed payment terms in the form

of a BPO to be issued by a bank in

favour of the Seller’s Bank, subject

to the UR BPO published by the

International Chamber of

Commerce, and to be notified at

least 30 days before the agreed

date of shipment or at least 30 days

before the earliest date within the

agreed shipment period. Unless

otherwise agreed, the BPO shall be

payable at sight and allow

Agenda

BPO impacts on contracts

Corporate-to-corporate

space

Corporate-to-bank space

Bank-to-bank space

Corporate-to-bank contract

Section 8 of TSU Service Description (page 44)

provides guidelines for the Customer Terms of

Sample clauses for banking service terms and

conditions

taken from the TSU Service Description

Subject

Examples of clauses

Conditions of using the banking service and relevance to TSU service

If, as part of the banking service, we undertake to pay a third party certain monies on the occurrence of a data match, you authorise us to debit your nominated account with the required sum.

If we have received monies on your behalf as a result of a data match we will credit your nominated account promptly and in accordance with these terms and conditions.

Instructions and validity of data

You warrant and represent to us that:

a. your data (and any document that you provide to us to evidence that data) is valid, correct and genuine; and

b. in sending your data to us, you are acting in good faith and comply with applicable law.

Matching function of the TSU and relevance to banking service

If there is a data match, we will act upon your standing

instructions…. including, if we have agreed to do so, paying such third parties as are required as a result of the data match.

No responsibility for trade transaction and disclaimer

Agenda

BPO impacts on contracts

Corporate-to-corporate

space

Corporate-to-bank space

Bank-to-bank space

Bank-to-bank contract

TSU

Bank-to-bank contract for TSU is the

TSU Service Description

Sections

Examples

Purpose of the document (page 3)

The TSU service description…. constitutes a statement of the

respective roles, rights, and obligations of SWIFT and the financial institutions including the eligibility criteria for becoming and

remaining a Trade Services Utility user.

Purpose of the document (page 3)

This service description, together with the SWIFT General Terms and Conditions and other relevant service documentation, is an

integral part of the contractual arrangements between SWIFT and the financial institutions for the provision and use of the TSU

solution.

Components of the solution – Key principles (page 10)

Obligations between financial institutions and their corporate customers, financial institutions and third parties, and between or amongst corporate customers are outside the scope of the TSU

solution.

Components of the solution – Key principles (page 10)

All involved banks in a TSU transaction are aware of all other involved banks, that is, there are no hidden participants.

It is a question of legal entity and responsibilities of this entity:

The BIC must be the one of the local bank who owns the

Bank-to-bank contract for TSU is the

TSU Service Description

Sections

Examples

Financial Institutions' Roles (page 6)

In a TSU transaction, an obligor bank is explicitly requested to accept its role before the baseline is established and after any amendments to the established baseline.

Financial Institutions' Roles (page 6)

In a TSU transaction, a submitting bank is explicitly requested to accept its role before the baseline is established.

TSU application (page 13) A data set contains data that financial institutions obtain from

different sources, such as their corporate customers, and submit to the TSU application.

TSU application (page 14) …an established baseline is one that reflects the common understanding of the banks involved.

Timers and Time Violations (page 27)

Bank-to-bank contract for TSU is the

TSU Service Description

Financial institutions

obligations to other

financial institutions

Examples

Rulebook (page 38) By subscribing to the TSU solution, each financial institution

agrees to abide and be bound by the rules applicable, as more fully specified in this section.

Data Quality and Submission (page 38)

A financial institution assumes no liability or responsibility for the accuracy, genuineness, validity or the legal effect of any data received from its customer or any other party. However, a

financial institution must ensure that the data it submits to the TSU application accurately reflects the data and information it received.

Liability (page 39) No financial institution will be liable to any other financial institution

or third party for any indirect, special or consequential damages (including without limitation loss of profit, loss of business,

Chapter 7 Rulebook

Additional paragraph related to ICC URBPO

• Important: If a TSU transaction is established with a BPO, or if a

BPO is inserted in a TSU transaction after

1st July 2013

, by

default, unless otherwise agreed, the BPO will be subject to the

ICC Uniform Rules for Bank Payment Obligation (URBPO)

instead of section 7.7 of this service description. For clarity, for

a TSU transaction with a BPO, the service description, including

chapter 7 applies, but section 7.7 is superseded by URBPO; for

a TSU transaction without a BPO, the service description,

including chapter 7 applies.

ICC Uniform Rules for Bank Payment

Obligations - URBPO

17

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Thank you

SWIFT for Corporates Supply Chain on SWIFT