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Introduction to Letters of Credit

Understand the nature and mechanics of Letters of Credit to better identify customer needs and recommend appropriate solutions

Introduction to Letters of Credit Training Course

A one-day course

  • The trainer has 40 years first hand and practical trade finance experience with a major international bank.
  • He has provided training to banks and companies globally on a variety of trade finance subjects.
  • This one day course reflects the trainer’s trade finance experience in structuring trade deals, corporate relationship management, credit risk and trade operations.
  • The examples/case studies used, which are taken from the trainer’s experience, are practical examples which will greatly assist the delegate in understanding this subject
  • This course is a ‘must’ for any finance, legal or corporate professional seeking an understanding of the use and benefits of Letters of Credit

  • To gain an understanding of the nature, operational requirements and risks associated with issuing and receiving Letters of Credit, in it’s many forms
  • Learn how to identify customer needs and recommend appropriate solutions, as well as assess various risks to both bank and customer in international trade transactions.
  • Understand how to use export letters of credit effectively to maximise the protection which they afford.
  • Through the use of trainer led sessions and practical case studies, be able to identify ways of mitigating the underlying risks associated with trade finance transactions and carry out the processes involved.
  • Obtain an understanding of the purpose and application of the various International Chamber of Commerce (ICC) rules and practices used in international trade.
  • Be provided with an introduction to core trade finance products.
  • Have an overview of Financial Crime Compliance, operational and credit risk considerations.

The course is highly interactive and centres around the use of a variety of case studies, predominantly based on actual files and ICC opinions.

This is a foundation level course which can be supplemented by our Advanced Trade Finance and Trade Based Money Laundering & Sanctions courses.

Introductions

  • Trainer & participants
  • Aims and objectives.
  • Course context.

What is Trade Finance?

  • Benefits of trade finance to businesses and banks
  • Introduction to the trade cycle
  • What is trade finance?
  • Case studies I & II – Trading Internationally
  • Buyer / seller considerations, roles and responsibilities
  • International Sales Contract
  • International Trade Risk

Documentary Letters of Credit

  • Principal parties (buyer, seller, issuing bank, advising bank, confirming bank)
  • Benefits to importers and exporters of Documentary Letters of Credit
  • Relationship between buyer, seller and banks
  • Advantages / disadvantages of letter of credit
  • Risk factors re issuing letters of credit
  • The autonomy of letter of credit operations (Independence Principle)
  • Importance of the application form (legal issues)
  • Instructions to issue/amend credits
  • Workability of the credit
  • Jurisdiction

Documentary Letter of Credit Process

  • Compare / contrast roles and responsibilities of the importer and exporter
  • Case study III – The Walton Supply Company

Key characteristics of Commercial Documents used in international trade

  • Invoices (commercial, tax, customs, consular, pro-forma invoice)
  • Marine/Ocean Bills of Lading
    • Title, transfer
    • Control of goods (transferable B/L v. straight consigned)
    • Delivery considerations
  • Other forms of transport document
    • Multimodal transport document
    • Air transport document
    • Road, Rail or Inland Waterway transport documents
    • Non-negotiable / draft bill of lading
  • Insurance Policy/Certificate
  • Other certificates (Certificate of Origin, Inspection Certificate, Phytosanitary, etc)
  • Bills of Exchange
  • Understanding documents
  • Case study IV – HHB Hong Kong
  • Exercise - using examples of commercial documents to help participants to understand their technical content, the significance and importance of documents.

Incoterms 2020

  • Summary of terms
  • Advantages/disadvantages to importer/exporter in the use of Incoterms 2020
  • Principal methods of settlement
  • Exercise to check understanding of Incoterms application.

International Chamber of Commerce (ICC)  UCP 600 Rules:

  • Structure and obligations under letter of credit;
  • Availability of credits, expiry date and place for presentation
  • Availability by payment, deferred payment, acceptance, deferred payment standard for examination of documents; dealing with discrepant documents, waiver and notice of refusal;
  • Key legal decisions (Santander v Paribas, CIC v CMB)

Completing an LC Application Form

  • Exercise completing a documentary letter of credit application form

Advising, confirming, reimbursing credits

  • Obligations and Risks associated with the Advising Bank, Nominated Bank, Confirming Bank
  • The use of the Bill of Exchange in Letters of Credit
  • Application of the Uniform Rules for Bank-to-Bank Reimbursement ICC 725
  • Assignment of proceeds

Presentation / examination of documents

  • Key elements of the main articles of UCP 600
  • The standard for examination of documents: “no conflict” rule – article 14
  • Processing non-compliant documents as Nominated/Confirming Bank
  • Processing non-compliant documents as Issuing Bank
  • Risks arising from non-adherence to UCP 600
  • Legal cases and ICC Banking Commission opinions
  • DOCDEX – dispute settlement mechanism of ICC for trade finance
  • Analysing irregularities in documents
  • Exercise re presentation / examination of documents

International Standard Banking Practice ISBP 745 (2013 Rev)

  • What constitutes an “alteration” or “addition” to a document, when and how should these be authenticated?
  • How should documents be signed, if this is not explicitly stated in the credit?
  • How should one handle typing errors on documents regarding the name and address, different addresses of same company, etc.?
  • Detailed practices when working with different trade documentation (e.g. documents not covered by UCP, packing lists, weight lists, beneficiary certificate, non-negotiable sea waybill, analysis inspection, health, phytosanitary, quantity & quality certificates)

Other forms of Letter or Credit

  • Usance credits
  • Transferable Credits
  • Back-to-Back Credits
  • Red and Green Clause Credits
  • Revolving Credits
  • Standby Credits (vs Guarantees)
  • Synthetic Credits

General  Considerations

  • Risk Assessment
  • Sanctions Clausing
  • Operational, Credit and Financial Crime Compliance Risk
  • Constituent parts (money laundering, terrorist financing, sanctions breaches)
  • An introduction to the nature of compliance risk in cross border transactions
  • The consequences of non-compliance (for banks, corporates and individuals)
  • Risk assessment from FCC perspective (CDD / KYC)
  • Acceptance / discounting / forfaiting
  • Various exercises / case studies addressing key points of course learning

The trainer is a highly experienced banker who worked for HSBC (and the legacy bank, Midland Bank before that) for 40 years from 1977 until 2017.

The trainer has been passionate about international trade and financing, ensuring good outcomes for both the bank and its customers. He has experience of many industry sectors, international businesses, debt syndication, acquisition finance, and credit risk and debt recovery management. His principal specialism is trade and commodities financing. During his career, he was selected for a number of key roles involving complex problem identification, analysis and resolution, leading to reductions in risk and loss and improved processes and compliance.

During his first 16 years with the bank, the trainer undertook junior, then subsequently management roles in business, commercial and corporate banking. Then, in 1993, he became a divisional credit manager, working in that role until 1995. He assisted in the structuring of new business proposals and had credit approval responsibility for business lending in Kent and Sussex. He then spent five years as a senior business banking manager (Windsor and Slough) where he led a team of 16 managers and support staff, and was responsible for relationship management for the UK subsidiaries of overseas corporations. He moved into trade finance in 2000, in London, as a senior relationship manager, working with a team of specialist trade services managers and support staff. His team’s portfolio comprised around 80 different relationships.

In 2002 he was promoted to the role of senior corporate banking manager, a position he held until 2010. The role included responsibility for around 20 large relationships, where the turnover of the clients was up to £6 billion. The portfolio was predominantly trade intensive (import / export and commodities), with the business having overseas parent companies, or overseas operations. In this role the trainer had to liaise closely with specialist departments and was also involved in marketing the bank’s business products. He was also responsible for credit risk management aspects and it was, during this time, that the trainer began running training courses, initially on the subject of credit.

The trainer spent his final seven years at HSBC (2010-17) as a senior portfolio risk manager at the Trade UK department in London. His roles there included:

  • overseeing the UK commercial segment’s trade portfolio, monitoring general performance and quality assurance;
  • providing expert advice to sales managers, credit officers and other stakeholders on debt structuring and the use of appropriate products;
  • developing analytical and monitoring models to support increased facilities or to identify adverse trends;
  • assisting corporate recovery managers in minimizing potential losses due to debt exposure or from an operational perspective; and
  • delivering trade finance training courses to stakeholders (in debt structuring and products).

In 2014 The trainer was awarded a Certificate in Trade Based Financial Crime Compliance, further to completing a course and passing an exam run by Manchester University Business School.

Despite increasing movement to unstructured open account trading, there is still a place for Trade Finance, and, in particular, Letters of Credit which are widely used by small and medium sized enterprises, in the import and export of goods and services.

This 1-day course will provide a firm foundation to participants new to the workings of Letters of Credit, as well as reinforcing and consolidating the knowledge of those participants who already have some general Trade Finance experience, through a better understanding of the nature and mechanics of Letters of Credit.

Included in the course are practical sections covering documentation, the regulatory environment and the implications of Financial Crime Compliance. These include the various International Chamber of Commerce (ICC) rules and practices and a high-level oversight into anti-money laundering (AML), Countering the Financing of Terrorism (CFT) and Sanctions considerations.

The course will use case studies and interactive class discussions, encourage delegates to question and test their knowledge at each stage of the course

  • The case studies and mentimeters were great! They were a chance to test what I was learning and my understanding of the content.
  • There were a good use of interactives, and availability to ask direct questions when the arose.

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