This course can be presented face to face in-house or via live in-house webinar.
Fundamentals of International Trade Finance Course Objectives:
This 1-day course which will assist participants to identify customer needs and recommend appropriate product solutions, as well as assess various risks to both bank and customer in international trade transactions.
Through the use of trainer led sessions and the use of case studies they will be able to explain and identify ways of mitigating the underlying risks associated with trade finance transactions and carry out the processes involved in documentary collections, documentary letters of credit and guarantees.
The purpose and application of the various International Chamber of Commerce (ICC) rules and practices used in international trade will be covered.
Participants will have an introduction to core trade finance products.
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, Letters of Credit and Trade Based Money Laundering & Sanctions courses.
Fundamentals of International Trade Finance 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
- Credit risk
Group exercise to check understanding of Incoterms application.
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 bills 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 particular documents.
Core Trade Products
- Import / Export Documentary Collections
- Letters of Credit
Import / Export Documentary Collections
- Principal parties (buyer, seller, presenting bank, remitting / collecting bank)
- Benefits to importers and exporters of Documentary Collections
- Relationship between principal and banks
- Role of banks (incl. correspondent banks / agency arrangements)
- Legal and practical issues re the duties of the banks involved in handling collections
- Conditions for release of documents
- Areas of risk:
- Usance collections
- Partial payments
- Avalisation (so rare would exclude)
- Release of goods on trust
- Procedures for Protest of Bill of Exchange (B/E) and underlying risks
- Complexities of the ICC Uniform Rules for Collection (URC 522)
a) Alpha Ltd considers the needs of an exporter and importer and the benefits of using Documentary Collections in a cross-border transaction
b) Beta Ltd covers the collections procedure and the practical application of the URC 522
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 letters 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;
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.?
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 procceds
a) Gamma Ltd considers the needs of an exporter or importer and the suitability of using a Letter of Credit in a cross-border transaction
b) Theta 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:
- Irrevocable / revocable
- Usance credits
- Transferable Credits
- Back-to-Back Credits
- Red and Green Clause Credits
- Revolving / Reinstatement Credits
- Standby Credits
- Synthetic Credits
- Types of guarantees:
- Tender/bid bonds
- Advance payment guarantees
- Performance bonds
- Retention money guarantees
- Warranty Guarantees (Maintenance guarantees)
- Bail bonds
- Payment guarantees
- Indemnities/counter guarantees
- Risk Assessment (including risk weighting)
- Wording of Guarantees
- Demand under guarantees: issues
- Extend or Pay demands
- Expiry and Cancellation Uniform Rules for Demand Guarantees 758: main principles, URDG 758 guarantee sample wording, sample clauses
a) Sigma Ltd reviews a business’ need for guarantees, the identification of the appropriate product and and the practical application of URDG 758, the effect of local banking practice and different legal jurisdictions.
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; Omega Limited, the assessment of a potential AML / CFT / sanctions breach through the use of one of the above trade products, requiring the delegates to identify key compliance risk issues and the need for further information to make a risk-
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.
Fundamentals of International Trade Finance Course Summary
Despite increasing movement to unstructured open account trading there is still a place for Trade Finance particularly for small and medium sized enterprises.
This course will provide a firm foundation to participants new to the concepts of trade finance, as well as reinforcing and consolidating the knowledge of those participants who already have experience. In learning how to identify customer needs participants will be better placed to recommend appropriate product solutions.
In addition, the course will help participants to identify and assess various risks to both bank and customer in international trade transactions, as well as being able to explain and identify ways of mitigating the underlying risks associated with trade finance transactions.
Included in the course are practical sections covering documentation, core products, documentary collections, documentary letters of credit and contract guarantees, as well as the importance of 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.