Friday 16 September 2016

CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

The after-glow of a successful conference in Warsaw is still bright on my face as this newsletter reaches you. The event encapsulated all that ITFA is famous for - substantive and relevant education and information, effective networking and camaraderie all enjoyed in a social setting par excellence. The presentations and panels highlighted a number of our achievements throughout the year, the guide to Basel-compliant non-payment insurance policies for example - but also expertly signposted a number of the issues our market will need to face in the coming year.
One of these is, of course, Brexit. From the UK to the remainder of the developed world, as well as emerging markets, investors were highly cautious as the long term ramifications of the UK exiting the European Union were yet to be quantified. However, markets and investors were quick to shrug off the short term dent to investor sentiment as markets pared losses and swiftly recovered.

The announcement by the Bank of England of a fresh wave of monetary stimulus bolstered both investor confidence and the continuous global search for yield. With the global commodities market trading sideways for most of the summer months, monies were promptly redeployed into emerging market economies, as the potential for an uptick in economic activity whet investors’ appetite.

With summer out of the way, it is safe to say that all major economies, both developed and EM, have come out of the gruelling summer months relatively unscathed. However, with the European Central Bank falling short of expectations, all eyes are now on the forthcoming US Federal Reserve rate setting meeting, and particularly on how and when the next interest rate increase will impact the US dollar and subsequently the borrowing costs of emerging market economies. Inevitably, I guess we will all be tracking the performance of the dollar as history has taught us not to take movements in the Greenback too lightly.

In this month’s Newsletter, we present a technical paper titled ''Assignment of Proceeds under Letters of Credit - UCP600''. We then invite you to read an interesting article prepared by GTR Editor, Shannon Manders, on how the industry is facing the challenges and risks of the Trade Finance Learning Gap discussed in the session dedicated to Young Professionals during the ITFA conference.  Finally, a short tutorial has been prepared on how to effectively use the Search Function in the ITFA website.

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email,

Best wishes,

Sean Edwards

Sunday 11 September 2016

TECHNICAL PAPER - ASSIGNMENT OF PROCEEDS UNDER LETTERS OF CREDIT - UCP600 by Lorna Pillow, Senior Vice President, London Forfaiting Company Limited, ITFA Board Member

Introduction and Background

Banks have discounted Documentary Letters of Credit (“Credits”) for many decades, following the first set of uniform rules  published by the ICC (International Chamber of Commerce) in 1933. Yet when the infamous and much quoted case of Banco Santander SA vs Banque Paribas was heard before the  English courts in 1999, it raised serious concerns amongst trade finance practitioners.  Many articles were written at the time, resulting in one of the most important changes in the updated ICC Uniform Customs and Practice for Documentary Credits (‘UCP 600’) regarding the treatment of deferred letters of credit.

The ICC was compelled to ensure that there was consistency between regions on a point so critical  to the survival of secondary market trading. A new Article 12(b) was introduced into UCP 600 as follows: “By nominating a bank to accept a draft or incur a deferred payment undertaking, an Issuing Bank authorizes that Nominated Bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that Nominated Bank'' thereby facilitating the fundamental  business need for the discounting of deferred credits.

The provision applies where the Nominated Bank which has incurred a deferred payment undertaking discounts its obligation before maturity and subsequently fraud is discovered. The effect is that the Issuing Bank is not relieved of its obligation to reimburse the Nominated Bank, even if the fraud comes to light before maturity. The terms Issuing Bank and Confirming Bank are used interchangeably in this article mirroring the economic effect of the undertakings in Articles 7 and 8 of UCP 600 relating to Issuing Banks and Confirming Banks respectively.

The stipulations in Articles 7, 8 and 12 of UCP600 have established the independent rights given to a Nominated Bank to incur a deferred payment undertaking which includes the authorization to a Nominated Bank to prepay. The right to get reimbursed is not affected by the action of such Nominated Bank to actually prepay or discount such letter of credit.

Whilst this treatment of deferred payment credits addresses the main issue raised in Santander, the question as to whether Third Party Banks or forfaiters which further discount such Credits get the same protection as the Nominated Bank has not been resolved or dealt with by the changes made in UCP600.

What is the position, for example, of the Third Party Bank/forfaiter which gets an assignment of proceeds from a Nominated Bank or directly from the beneficiary? Furthermore, if an Issuing Bank gives an undertaking of payment at maturity to a Third Party Bank, and such Third Party Bank then assigns proceeds to another Bank, does this give the same rights to the Third Party Bank as those of the Nominated Bank? What can a Nominated/presenting Bank do if the Issuing Bank refuses to amend reimbursement instructions and insists that its obligations are limited to those set out in UCP600?

Most of the issues in this area relate to the vulnerability of assignees to defects in the rights being ''sold'' by the assignor. Before discussing these issues it is worth noting that these problems can be avoided by ensuring that the financial institution  intending to discount a deferred payment credit is appointed as  the Nominated Bank, either by having the Credit available with them or alternatively, available with any Bank. Needless to say however, this is not always possible.   

Under English law and many other common law legal systems, the basic starting point is that an assignee cannot obtain a better title than his assignor. This is sometimes known as taking “subject to equities” that is, rights which other parties have against the assignor and which the assignee must consequently respect as they existed on or before the date of assignment. Accrued rights to set-off against the transferred debt by the obligor of that debt are one example of such rights. In such circumstances, it would be unfair for the debtor to lose its rights simply because there had been a change of creditor.  

It is perfectly possible for a debtor, say an Issuing Bank, to agree that it will pay an assignee regardless of any defects in the rights which have been acquired from the assignor. In the case of letters of credit, Article 39 of UCP 600 allows for proceeds to be assigned to a Third Party Bank. Such an assignment is, of course, indispensable when a Third Party Bank buys the right to receive payment from either a Nominated Bank or a beneficiary. Such an assignment does not, in and of itself however, cure or resolve the issues relating to defects or adverse claims affecting the assignor’s rights explained above [1] but these can be overcome with a suitably worded acceptance of the notice of assignment by the Issuing Bank. Obtaining an acceptance of assignment of proceeds is, and has been for some time, standard forfaiting practice but care needs to be taken as whilst UCP 600 makes it clear that a beneficiary may assign proceeds, the Issuing Bank is under no obligation to either accept such requests or to acknowledge them. This has become more of an issue with some Banks becoming increasingly wary of accepting such requests from non customers, or in some circumstances where it is claimed that the assignment will result in a conflict with local law. Needless to say this is a barrier to the prepaying/discounting by third party institutions and is therefore to be discouraged.

It is of course at the discretion of every Bank to take into consideration other mitigants and specifics of the transaction that may well allow them to discount a Credit. 

It is good practice however that in all cases any Third Party Bank/forfaiter discounting a Credit advises the Nominated Bank of its intention to do so. 

Apart from ensuring that there has been an assignment of proceeds under Article 39 of UCP 600, the assigning Nominated Bank or beneficiary must ensure that the assignment is valid and has been created before the SWIFT advising such assignment is sent to the Issuing Bank.

Whilst a notice of assignment and acceptance should be obtained in all cases where proceeds due under a Credit are assigned to a Third Party Bank, an endorsement of a draft can in many legal systems provide similar protection under national legislation e.g. under the English Bills of Exchange Act 1882 where an endorsee can benefit from the protection afforded to holders in due course. It is understood by all parties that Issuing Banks can only pay Third Party Banks subject to the satisfaction of their KYC procedures. Whilst many Issuing Banks do not charge assignment fees to encourage trading of their own name, this is not always the case. Where fees are charged it is a matter of commercial negotiation as to the amount that the Issuing Bank will charge for such assignment although one hopes that these are restricted to KYC expenses and changes in payment instructions.

In addition to the Issuing Bank carrying out KYC on the bank it will pay at maturity, it is also practice for the Third Party Bank (usually not a party to the Credit) to carry out due diligence in relation to the underlying transaction and counterparties. Although this may be no easy task, Uniform Rules for Forfaiting (URF 800) [2], Introduction to the Primary Forfaiting Market and The Forfaiting Money Laundering and KYC checks all published by ITFA and available to its members, give guidance on this issue to Third Party Banks wanting to discount Credits. The Rules and Guidelines take into consideration other measures that banks may take to protect themselves (at least to some extent) on issues that relate to the underlying trade and its counterparties, specifically as they may not be a party to the Credit. It is of course imperative that such an analysis takes place before the discounting of a transaction. Whilst for established clients this process may be one of routine, tools exist to facilitate detailed analysis of the transaction, for example to track vessels and Bills of Lading. The Third Party Bank should insist that although the transaction is being discounted on a ''without recourse basis'', there is an ability to retain recourse in the event of  a breach of any representation and warranty that such Bank may have on the Bank or counterparty selling the asset/transaction.

The other key question is that when a beneficiary presents documents through an Advising Bank (not the Nominated Bank) under the Credit, and the acceptance of documents is sent to such Advising Bank confirming a payment undertaking, could that Advising bank discount the proceeds under the Credit and seek the same remedy as that of a Nominated Bank under UCP 600?  In our opinion when an Issuing Bank gives a reimbursement undertaking to a presenting bank, that presenting bank is effectively authorized to then discount a deferred payment undertaking. It is advisable though that such presenting bank should still advise the Issuing Bank of its intention to discount the proceeds under the Credit before doing so.

Whilst URF 800 allows for specific provisions under Article 4a, 13e and optional clauses to limit the liability of each party, such representations and warranties are as strong as the party you are dealing with. Therefore, the due diligence process including the analysis of the balance sheet of your counterparty to whom you will discount on a ''without recourse'' basis cannot be undermined.  For a Third Party Bank to mitigate the risk of fraud that could happen from the time the documentation is accepted to maturity, the Third Party Bank should insist on having recourse to the Seller whether the Nominated Bank or otherwise together with other representations and warranties [3] set out in the agreement between the two parties.

Disclaimer: This information does not constitute legal advice and is for education purposes only.  You should not rely on this opinion as an alternative to seeking legal advice.

[1] Note than where the assignor is a Nominated Bank it should not be subject to any defences to payment based on fraud given the changes to UCP mentioned above and so the rights it passes on to an assignee should be similarly unaffected.
[2] Uniform Rules for Forfaiting (URF) 800 is the first standard set of rules for forfaiting transactions by ICC in partnership with International Trade and Forfaiting Association (ITFA).
[3] Refer to Uniform Rules for Forfaiting (URF 800) and Introduction to The Primary Forfaiting Market 

Saturday 10 September 2016


The trade finance learning gap should be bridged before it’s too late, said speakers at the International Trade & Forfaiting Association’s (ITFA) conference, hosted in Warsaw between 7-9 September.
ITFA formally launched its mentoring programme at the end of last year, and invited some of its mentees to speak at its annual conference. In a session titled “Teaching the next generation”, mentees Asif Dad and Michel Meylacq told the audience that mentoring plays a fundamental role in the careers of young professionals. They called for the industry to assist them in attracting more mentors and mentees to ITFA’s programme.
''Young professionals are the future of the industry, and you can help shape that,” Dad said.
The session addressed the needs of young professionals in the trade finance arena, finding these to chiefly be: access to resources, training and qualifications, and networking.
The speakers highlighted the fact that the trade finance industry is ''skewed towards experienced professionals''. According to a 2014 survey by GTS on global trade and transactional services, only a small minority (2%) of trade professionals currently working in the industry have less than two years of experience in the field.
They recommended that the learning gap within the trade finance industry be tackled ''before it’s too late''.
Speaking on the sidelines of the event, Sean Edwards, ITFA chairman, told GTR there is going to be a ''deficit in the sort of people that understand trade. There are a lot of very experienced people in the industry, which you see if you come to these conferences. But eventually they do retire,'' he said.
Edwards called for those leaving the industry to transfer their know-how, gained through their cumulative experience, to their younger colleagues. ''It’s really important for them to pass on their knowledge: you don’t get that through any training programme or through any textbooks – you can only get it through the one-to-one interchange with people who have been doing this business for a long time.''
As the world of trade evolves, so banks – and their customers – are finding new and different ways of doing business. ''So if we, as an industry, don’t evolve in the same way as our customers, then the industry does run the risk of potentially being not relevant to our customers. And we can’t have that,'' Chris Hall, ITFA board member and head of its Young Professionals network, told GTR at the conference.

Friday 9 September 2016


The ITFA Board is pleased to announce the following three new members.

Greensill Capital (UK) Limited (Greensill Capital) is an independent financial services firm specialising in origination and syndication of supply chain finance, structured trade finance and working capital optimisation solutions globally. Greensill Capital was founded in 2011 by a seasoned team of trade and supply chain finance specialists. Headquartered in London, Greensill Capital has grown to over 140 professionals worldwide with offices in New York, Chicago, Frankfurt and Sydney. Greensill Capital is the majority owner and bank holding company of Greensill Bank AG, a regulated German private bank.

Greensill Capital is one of the leading originators of supply chain finance and account receivables based assets, utilising its own balance sheet, as well as that of its subsidiary bank. In addition to its own hold position, Greensill Capital partners with a wide range of banks and institutional investors to provide the stable funding streams underpinning the process. Since launch, the company has completed over 100 Supply Chain Finance programmes, extends facilities of over $9bn to customers across Europe, North America, Latin America, Africa and Asia, and works with more than 75 different banks and institutional partners.

Mr. Wasif Raza will be the main contact for all ITFA related matters.

The Export and Import Bank of China was founded in 1994 and is a state bank solely owned by the Chinese Government and under the direct leadership of the State Council. Its international credit ratings are the same as China's sovereign ratings.

The Bank is headquartered in Beijing. It has more than 20 business branches inside China, one branch and two representative offices outside China, namely the Paris branch, the Representative Office for Southern and Eastern Africa and St. Petersburg Representative Office. It has established correspondent banking relationship with more than 1,000 banks.

The Bank's main mandate is to facilitate the export and import of Chinese mechanical and electronic products, complete sets of equipment and new high-end products, assist Chinese companies with comparative advantages in their offshore project contracting and outbound investment, and promote international economic cooperation and trade.

Guo Jing will be the main contact for all ITFA related matters.

As a financial services provider independent of any specific bank, AIC Finanz GmbH has been a dependable and creative partner to the international business community since 1991. They are specialists in trading and recovering receivables from international trade transactions, living up to the highest industry standards.

The focus of their activities is on emerging markets. Their highly skilled team offers financing solutions to customers that are individually tailored to their needs. AIC Finanz GmbH buy and sell receivables from international trade transactions on a non-recourse basis (forfaiting).

In addition to this, they operate an international receivables collection agency and are active around the globe in both fields. SMEs who intend to structure their exports in accordance with the requirements of the forfaiting markets may also obtain advisory services from AIC Finanz GmbH.

Christiane Heldermann will be the main contact for all ITFA related matters.

Wednesday 7 September 2016


We wish to take the time to remind our readers of the upcoming ITFA events.

Firstly, the Southern European Regional Committee (SERC), is organising an Education Seminar for its ITFA members, which will be held on Monday, 31 October 2016 in Italy. The seminar will be held in both English and Italian. The event will commence at 2:30pm and will be held at the premises of Banco Popolare Headquarters, Verona, and will be followed by drinksSince access will be restricted to confirmed guests only, you are kindly requested to send an email confirming your attendance to Barbara Salazer by latest Friday 21 October 2016.

Another upcoming ITFA event is the GRC Fall workshop which is being held on November 23, 2016 in Frankfurt am Main. The event is for ITFA members only. The workshop will be held in German. As is customary, the workshop will be followed by the traditional Christmas Dinner which will be sponsored by ITFA. The seminar (14:00 – 17:00 hrs) including refreshments will be hosted by Helaba Landesbank Hessen-Thüringen Girozentrale, MAIN TOWER, Neue Mainzer Str. 52-58, 60311 Frankfurt am Main. The ITFA Christmas Dinner, which is sponsored by ITFA, will be held at 17:30 hrs.

May we also take the opportunity to remind you all about ICC Academy’s first Regulation and Compliance in Trade Finance Conference, which is being held on 26 October 2016 in SingaporeThis high-level event will gather some of the trade finance industry’s leading professionals to discuss regulatory trends - both in the regulatory capital and financial crime fields - which have had a major impact on the financing of trade in recent years. The conference will include practical sessions on how banks and corporates can best manage increasing regulatory compliance risks.

Another upcoming event is the Accuity AML, Risk Reduction and Compliance Asia Conference which is being held between 3-4 November in Hong Kong. This conference brings together experts from North America, Europe and Asia and offers the opportunity for you to learn about the latest trends in fighting financial crime globally. Please click the link above for further details.

Tuesday 6 September 2016


Following the success of this year's ITFA Annual Conference, held in Warsaw at the beginning on this month, we have taken aboard all feedback and suggestions that our valuable ITFA members have put forward. 

One of the issues brought up by those present, was the effectiveness of the search function within the ITFA website. Therefore, following the revamp of the ITFA website earlier this year, we thought it would be a useful exercise to mention a few of the improvements that were implemented, and also specifically illustrate the effective use of the search function.

These include:

1) Interface improvements

2) Images revamp

3) Online banners (sponsorship banners) are now not only visible on the ITFA homepage but also on the inner pages of the website

4) Creation of the ITFA events calendar - please do refer to the Events Calendar from time to time as it is constantly being updated

5) Conversion to responsive website - this was the main task in the website revamp. Responsive Web Design (RWD) refers to a web design that creates websites with an optimal viewing across a wide range of devices including mobile phones.

The ITFA website has been converted to responsive meaning that it works like a mobile app when viewed from a mobile phone. No user installation from the app store is required. This update was quite substantial, but was the next step forward, considering the primary audience of ITFA are mobile executives who probably use their mobile devices for browsing more than their desktops.

6) Keywords update - as much more content has been updated on the website, the status of keywords being used was tested to integrate new keywords or change others to continually optimize drive traffic to the website. This has enabled the search function to be used more effectively. 

For example, if you wish to search for something relating to URF - simply key in URF in the search box at the top right of the webpage.

All posts and documents with the word URF will then show up and by clicking on that particular item, one can then open the article/document.

In addition to the above, another thing we wish to clarify is that as promised during the conference in Warsaw, we are currently discussing, together with our IT consultants, in order to find a solution to speed up the ITFA website. We should have a reply in the coming days and will keep you posted on this issue.

Should you need any further assistance, please do not hesitate to send us an email on