This course can be presented in-house via live webinar.
Introduction to Letters of Credit Course Objectives:
- 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 dentify customer needs and recommend appropriate solutions, as well as assess various risks to both bank and customer in international trade transactions.
- Through the use of trainer led sessions and practical case studies, be able to explain and 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.
Introduction to Letters of Credit Course Content:
- Trainer & participants
- What do you know?
- Aims and objectives.
- Course context.
What is Trade Finance?
- Benefits of trade finance to businesses and banks
- Introduction to the trade cycle
- Incoterms 2010
- Summary of terms
- The advantages/disadvantages to Importer/Exporter in the use of Incoterms 2010
- Principal methods of settlement
- General Risk Considerations
- Trade finance products vs open account
- Financial Crime Compliance – AML, CFT and Sanctions
- Know Your Customer (KYC) and Customer Due Diligence (CDD)
- Correspondent Bank risk
- Counterparty risk
- Sanctions clausing
- Operational risk
- Credit risk
Group exercise to check understanding of Incoterms application.
Core Trade Products
Core Trade Products
- Import / export Documentary Collections
- Letters of Credit
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
Introduction to the International Chamber of Commerce 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)
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 consigneed)
- 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
Exercise – using examples of commercial documents to help participants to understand their technical content, the significance and importance of documents.
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
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)
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
a) Dubois Ltd considers the needs of an exporter / importer and suitability of using a Letter of Credit in a cross-border transaction
b) Woods (Epsom) Ltd looks at the Documentary Letter of Credit procedure and the practical application of UCP600
Other forms of Letter or Credit
A review of the purpose, procedure and risks associated with:
- Usance credits
- Transferable Credits
- Back-to-Back Credits
- Red and Green Clause Credits
- Revolving Credits
- Standby Credits (vs Guarantess)
- Synthetic Credits
Case study; Forrest Ltd considers the use various forms of Letter of Credit and how they can be used reduce risks to the customer and / or provide a source of finance.
Financial Crime Compliance
- Consituent parts (money laundering, terrorist financing, sanctions breaches)
- Current examples
- An introduction to the nature of compliance risk in cross border transactions
- Why are international trade transactions increasingly a target for abuse?
- The consequences of non-compliance (for banks, corporates and individuals)
- Risk assessment from FCC perspective
Case study; Spruce Limited, the assessment of a potential AML / CFT / sanctions breach through the use of Letters of Credit, requiring the delegates to identify key compliance risk issues and the need for further information to make a risk-based assessment
- Summary of day’s learning
- Opportunity to refresh clarify key points, clarify
- Review main learning points.
Background of the Trainer:
The trainer is a leading trade finance practitioner and trainer with almost 40 years banking experience. Prior to taking early retirement, he was responsible for the risk management of the UK trade book for a top international bank, with whom he had spent his whole banking career as a Relationship Manager, Credit Risk Approver, Trade Finance Manager and latterly their Trade Portfolio Risk Manager.
He has provided training to banks globally on trade and receivables finance, risk mitigation, AML and sanctions compliance, is ACIB qualified and has completed the ICA Certificate in Trade Based Financial Crime Compliance issued by the University of Manchester Business School.
Introduction to Letters of Credit Course Summary:
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, participants will be better placed to identify customer needs and recommend appropriate solutions.
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.