The Problems with the Current Definition of A Bank in UCP 600

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1 May 2006

To: Members of the Consulting Group
UCP 500 Revision
ICC Banking Commission
Paris

Dear All,

This afternoon I am just back from a business trip in the Middle East and am inspired by the exchange of emails between Carlo Di Ninni and Gary Collyer.

My consultant experience guides me to foresee a possible future problem if the current UCP 600 definition of a bank is unchanged.

As Carlo has already pointed out, any party is a bank as far as UCP 600 is concerned, according to the current UCP 600 definition.

Then the problem arises. It follows logically that there is no need for an advising bank to pin-point to the beneficiary that the credit is not issued by a bank, because any party IS a BANK, under the UCP 600 current definition. Wal-Mart may say: "Hey, Mr. Advising Bank, you have to treat us the same as you treat any other bank, such as Citibank, HSBC, etc. We are all banks under UCP 600 and please do not discriminate us Wal-Mart here".

Therefore there is no need to provide a new SWIFT template for advising non-bank credits, or any additional clause in the SWIFT MT700 series standard messages used for advising non-bank credits, since any party is a BANK, as far as UCP 600 is concerned.

As a result, the beneficiary would never know which credit is not issued by a "bank" (according to common sense definition or according to local banking banking legislations that treat Wal-Mart (with due respect to Wal-Mart just because Wal-Mart is so famous as a non-bank) as not a bank).

I do appreciate the good will act of the Drafting Group but such definition may lead to problems as stated above.

I think Carlo and the Italian NC have their worries not without a good reason.

Personally as I am not banker, I would prefer a more factual and neutral term "party" to replace the word "bank". Since now more and more non-bank credits are issued, then why not recognise the new market changes in the UCP 600 that is supposed to reflect the changing market practices.

Best regards and see you all in Vienna.

T. O.

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