Introduction to the contractual aspects of the BPO August 2014 SWIFT s Corporate and Supply Chain team supplychain@swift.com
Agenda BPO impacts on contracts Corporate-to-corporate space Corporate-to-bank space Bank-to-bank space 2
BPO impacts on contracts How can banks add BPO in their C2B trade contracts? Buyer How can corporates include BPO as payment term in their sale contracts? Seller How can banks add BPO in their C2B trade contracts? Buyer s bank How can banks pair up with correspondent banks to handle BPO transactions? Seller s bank
BPO impacts on contracts Buyer Purchase order: BPO is one option in the payment conditions Seller BPO-based services terms and conditions BPO-based services terms and conditions Buyer s bank SWIFT s Trade Services Utility URBPO and TSU Service Description Seller s bank Correspondent banking contract
Agenda BPO impacts on contracts Corporate-to-corporate space Corporate-to-bank space Bank-to-bank space 5
Sale contract between buyer and seller Buyer Purchase order: BPO is one option in the payment conditions Seller BPO has become a new option in the ICC Model International Sale Contract (version of September 2012)
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 transhipments but no partial deliveries.
Agenda BPO impacts on contracts Corporate-to-corporate space Corporate-to-bank space Bank-to-bank space 8
Corporate-to-bank contract Buyer Seller BPO-based services terms and conditions BPO-based services terms and conditions Buyer s bank Seller s bank Section 8 of TSU Service Description (page 44) provides guidelines for the Customer Terms of Financial Institutions
Sample clauses for banking service terms and conditions taken from the TSU Service Description Subject Conditions of using the banking service and relevance to TSU service Instructions and validity of data Matching function of the TSU and relevance to banking service No responsibility for trade transaction and disclaimer Examples of clauses 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. 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. 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. we assume no liability or responsibility to you or to any third party for any loss or damage that is suffered or incurred as a result of: i. the form, sufficiency, accuracy, genuineness, falsification or legal effect of any data,
Agenda BPO impacts on contracts Corporate-to-corporate space Corporate-to-bank space Bank-to-bank space 11
Bank-to-bank contract Buyer Seller Buyer s bank TSU URBPO and TSU Service Description Seller s bank Correspondent banking contract
Bank-to-bank contract for TSU is the TSU Service Description Sections Purpose of the document (page 3) Purpose of the document (page 3) Components of the solution Key principles (page 10) Components of the solution Key principles (page 10) Examples 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. 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. 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. 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 relationship with the client.
Bank-to-bank contract for TSU is the TSU Service Description Sections Financial Institutions' Roles (page 6) Financial Institutions' Roles (page 6) TSU application (page 13) TSU application (page 14) Timers and Time Violations (page 27) Examples 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. In a TSU transaction, a submitting bank is explicitly requested to accept its role before the baseline is established. A data set contains data that financial institutions obtain from different sources, such as their corporate customers, and submit to the TSU application. an established baseline is one that reflects the common understanding of the banks involved. The Trade Services Utility application has several types of timers and time violations.
Bank-to-bank contract for TSU is the TSU Service Description Financial institutions obligations to other financial institutions Rulebook (page 38) Data Quality and Submission (page 38) Liability (page 39) Examples 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. 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. 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, economic loss, irrespective of the qualification of such damages as direct or indirect damages) arising out of, or in connection with a TSU transaction.
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. 16
ICC Uniform Rules for Bank Payment Obligations - URBPO Click image to ICC website Source: ICC 17
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