Trade: Why is 2013 a banner year?

James Wills

Banking Initiatives

Omar Rodriguez

Standards

12 July 2013

FIN- Average Daily Volumes* April 2012 vs. April 2013

2

EMEA Americas Asia

Pacific Total

Payments +9.0% +12.0% +11.3% +9.9%

Securities +10.0% +7.9% +14.9% +10.1%

Treasury +12.0% +18.4% +15.1% +13.6%

Trade +1.5% -6.9% +4.1% +1.1%

Total +9.5% +10.3% 12.6% +10.1%

*Sent traffic

Trade for Corporates

SWIFT’s MT 798 standards

Corporate challenges with traditional trade

instruments (1/2)

Export documentary credit • Difficult to manage advices of export L/Cs

and amendments received from multiple

banks in paper form and via different banks

portals

• Internally, difficult to collaborate between

treasury and various business units on L/C

allocation and preparation of documents

• Lack of visibility of each step in the

transaction process

• Too many discrepancies, slowing down

document compliance checking

• Delayed receipt of payment

Import documentary credit • Treasury lacks visibility to the allocation of

credit facilities to business units for import

L/C issuance

• Lack of standardised approval process for

import L/C issuance

• Delays in import L/C issuance

• No electronic global data base of import L/Cs

for real time reporting of outstanding L/Cs.

Ideally by Business Unit, Bank, Product,

Counter Party

• Difficult to link import L/Cs with export L/Cs

for back to back transactions

• Challenging to set up permanent and

transactional alarms on key L/C dates

4

Corporate challenges with traditional trade

instruments (2/2)

Standby L/C and Demand Guarantee • Management is decentralized and handled independently by each subsidiary

– Difficult for central treasury to monitor the terms and the availability of Standby L/C and

Guarantee facilities and improve the diversification of business allocation between the

banks

– How to offer flexibility for subsidiaries but enforce standard policies moving forward?

• Reconciliation of related data and settlement of fees is time consuming and prone to errors

• Complex documentation management will result in increased charges

• Transparency is not optimal and will result in differences between the banks‘ and treasury‘s

records

• With different technology solutions, more challenging to on-board subsidiaries and banks

5

Rationale for MNCs to adopt multi-banking

solutions for trade finance

Digitise and automate

Consolidate information

Standardise bank

interface

Accelerate decisions

Improve control

6

Trade finance – on SWIFT

• Streamline the L/C and Guarantees business

• Enhance total visibility of trade finance outstanding

• Workflow management of the trade life cycle, reduce

discrepancies and reduce costs

LC/Guarantee

Application/

Amendment

Import

Advising banks

Exporter

MT 798

LC/Guarantees

advice/

Amendment

Export

Issuing banks

Importer

MT 798

7

FIN MT 798

FIN MT 7xx

Buyer’s

bank(s)

Seller

Seller’s

bank(s)

Buyer

1 2 3

Industry standards for L/Cs and Guarantees

8

1

SWIFT's MT 7xx are industry owned and technology

neutral standards in support of ICC's rules for L/Cs,

Standby L/Cs and Demand Guarantees

MT 798 Documents MT 798 Documents

UCP 600

URDG 758

ISP98

FileAct

MT 7XX

SWIFT and your payments business

Scope of MT 798 standards

Trade Finance for Corporates

9

D I S C R E P A N C Y A D V I C E R E S P O N S E

Corporate-to-Bank

Import Documentary Credits

Bank-to-Corporate

IMP

OR

T D

OC

UM

EN

TA

RY

CR

ED

ITS

A M E N D M E N T N O T I F I C A T I O N

A M E N D M E N T A C C E P T A N C E N O T I F I C A T I O N

D I S C R E P A N C Y A D V I C E

C O M P L I A N C E A D V I C E N O T I F I C A T I O N

D I S C H A R G E A D V I C E N O T I F I C A T I O N

R E F U S A L A D V I C E N O T I F I C A T I O N

P A Y M E N T A D V I C E N O T I F I C A T I O N

I M P O R T P A Y M E N T S E T T L E M E N T A D V I C E

Applicant

A P P L I C A T I O N MT 798<770>

MT 798<700>

MT 798<701>

I S S U A N C E N O T I F I C A T I O N MT 798<771>

MT 798<700>

MT 798<701>

A M E N D M E N T R E Q U E S T MT 798<772>

MT 798<707>

MT 798<773>

MT 798<707>

MT 798<736>

MT 798<748>

MT 798<750>

MT 798<753>

MT 798<754>

MT 798<731>

MT 798<732>

MT 798<749>

MT 798<733>

MT 798<734>

MT 798<755>

MT 798<756>

MT 798<757>

Bank

10

Corporate-to-Bank

Export Documentary Credits

Bank-to-Corporate

EX

PO

RT

DO

CU

ME

NTA

RY

CR

ED

ITS

A M E N D M E N T A D V I C E

A M E N D M E N T A C C E P T / R E F U S A L A D V I C E

A U T H O R I S A T I ON A D V I C E N O T I F I CA T I O N

C O M P L I A N C E A D V I C E N O T I F I C A T I O N

D I S C H A R G E A D V I C E N O T I F I C A T I O N

R E F U S A L A D V I C E N O T I F I C A T I O N

P A Y M E N T A D V I C E N O T I F I C A T I O N

T R A N S F E R R E Q U E S T

T R A N S F E R A D V I C E

E X P O R T P A Y M E N T S E T T L E M E N T A D V I C E

Beneficiary

C R E D I T A D V I C E

MT 798<774>

MT 798<700>

MT 798<701>

MT 798<776>

MT 798<707>

MT 798<735>

T H I R D B A N K A D V I C E MT 798<780>

MT 798<710>

MT 798<711>

P R E S E N T A T I O N R E S P O N S E MT 798<737>

MT 798<751>

MT 798<752>

MT 798<753>

MT 798<754>

MT 798<731>

MT 798<732>

MT 798<733>

MT 798<734>

MT 798<755>

MT 798<756>

MT 798<722>

MT 798<758>

MT 798<782>

MT 798<720>

MT 798<721>

Bank

11

Corporate-to-Bank

Bank-to-Corporate

Applicant

GU

AR

AN

TE

ES

/ S

TA

ND

BY

LE

TT

ER

S O

F C

RE

DIT

E X T E N D / P A Y R E S P O N S E

A P P L I C A T I O N

A M E N D M E N T N O T I F I C A T I O N

E X T E N D / P A Y Q U E R Y

C L A I M N O T I F I C A T I O N

C L A I M / C H A R G E S S E T T L E M E N T

R E D U C T I O N / R E L E A S E A D V I C E

N O T I F I C A T I O N

A M E N D M E N T R E Q U E S T

R E D U C T I O N / R E L E A S E R E Q U E S T

MT 798<761 or 784 >

MT 798<760>

MT 798<762 or 785 >

MT 798<760>

MT 798<763 or 786 >

MT 798<767>

MT 798<764 or 787 >

MT 798<767>

MT 798<777>

MT 798<778>

MT 798<779>

MT 798<781>

MT 798<783>

MT 798<766 >

MT 798<769>

Bank Guarantees/Standby Letters of Credit

12

Corporate-to-Bank

Bank-to-Corporate

GU

AR

AN

TE

ES

/ S

TA

ND

BY

LE

TT

ER

S O

F C

RE

DIT

co

nt.

Beneficiary

A D V I C E

A M E N D M E N T A D V I C E

P A Y M E N T C L A I M

C L A I M A C K N O W L E D G E M E N T

MT 798<745 or 746 >

MT 798<760>

MT 798<743 or 744 >

MT 798<767>

MT 798<712>

MT 798<714>

Bank Guarantees/Standby Letters of Credit

13

Corporate-to-Bank

Bank-to-Corporate

C H A R G E S S E T T L E M E N T N O T I CE

Beneficiary

CO

MM

ON

GR

OU

P Corporate-to-Bank

Bank-to-Corporate

C H A R G E S S E T T L E M E N T N O T I CE

Applicant

MT 798<793>

MT 798<790>

F R E E F O R M A T

F R E E F O R M AT

C H A R G E S S E T T L E M E N T R E Q U E S T MT 798<794>

MT 798<791>

MT 798<788>

MT 798<799>

MT 798<789>

MT 798<799>

MT 798<793>

MT 798<790>

C H A R G E S S E T T L E M E N T R E Q U E S T

F R E E F O R M AT

F R E E F O R M A T

MT 798<794>

MT 798<791>

MT 798<789>

MT 798<799>

MT 798<788>

MT 798<799>

Bank

Bank

14

Corporates adopting the MT 798 standards Some are already using SWIFT for payments but this is not a pre-requisite

Corporates Use of

MT 798 for …

Use of

MT 798 as …

Live

Usage

Multi-bank

Solution

ArcelorMittal

International

Export LCs Exporter Live Misys

Alcatel-Lucent Guarantees Exporter Live Surecomp

Saudi Aramco Export LCs Exporter Live In-house

Metro Group

Buying

Import LCs Importer Live In-house

Reliance

Industries

Import LCs

Export LCs

Importer and

Exporter

2013 In-house

Safran Guarantees,

LCs

Importer and

Exporter

2013 GlobalTrade

Corporation

Voith Guarantees,

Export LCs

Importer and

Exporter

2013 Surecomp

15 Additional corporates are gradually

disclosing their adoption of MT 798

28 banks adopting the MT 798 standards 12 from the top20 Trade banks

16

Version 4 of MT 798 standards

General

• Publication Jan 2013

• Effective Nov 2013 (aligned with Standards Release 2013)

• Incremental changes

• Further clarification

• Editorial corrections

Lead Bank Model

• Addition of 3 optional fields at the end of every MT 798 Index

Message – Customer Identifier

– Processing Bank Identifier

– Lead Bank Identifier

17

Lead Bank Model – Applicant side

18

Applicant Lead Bank

Processing Bank 1

Processing Bank 2

Processing Bank 3

Advising Bank 1

Advising Bank 2

Issuing Banks

Web GUI / Host-to-Host /

FIN / FileAct

Bank-to-Bank

MT 798

Bank-to-Bank

MT 7nn

Lead Bank Model – Beneficiary side

19

Beneficiary

Lead Bank

Processing Bank 1

Processing Bank 2

Processing Bank 3

Issuing Bank 1

Issuing Bank 2

Advising Banks

Web GUI / Host-to-Host /

FIN / FileAct

Bank-to-Bank

MT 798

Bank-to-Bank

MT 7nn

Standby LCUpdate 2011-05-17.pptx SWIFT © 2011 20

ISO 20022 Demand Guarantees & Standbys

What are the existing Guarantee/Standby

messages on SWIFT?

• MT 760 Guarantee/Standby LC

• MT 767 Guarantee/Standby LC

Amendment

• MT 768 Acknowledgement of a

Guarantee/Standby LC Message

• MT 769 Advice of Reduction or Release

• MT 798 Corporate-to-Bank, Bank-to-

Corporate (Implementation Guide)

21

22

Guarantee & Standby LC Redevelopment

Group objectives

• Demand Guarantees & Standby LCs

• Identify all end-to-end business flows

– Corporate to bank

– Bank to bank

– Bank to corporate

• Agree on business content

– Create new ISO 20022 XML messages

– Define fields

• Validate message design and

functionality

23

Who participated?

….and Others

… Guarantee & Standby LC Messages

• Functionality:

– International and Local Rules • URDG 758

• ISP98

• UCP 600

– Model forms • Linked to rules

• Proprietary

– Local language / character sets

– Counter-Undertaking

– Enclosed documents/files

– End-to-End flows • Corporate-to-Bank, Bank-to-Bank, Bank-to-Corporate

– Automatic amount variation scheduling • By date and/or event

– Digital signature

– Flexible field/message size

– Structured messages with discrete field

definitions 24

Guarantee & Standby LC Messages …

• 20 New ISO 20022 Messages

• Undertaking Types:

– Demand Guarantee

– Standby Letter of Credit

• Business Processes:

– Application / Issuance / Advising

– Counter-Undertaking

– Confirmation

– Amendment

– Termination / Non-extension

– Demand Processing

– Settlement of Charges

– Status Reporting

– Surety (application / amendment request)

25

Messages – 1/2

Application

1. UndertakingApplication <tsin.005.001.01>

Issuance

2. UndertakingIssuance <tsrv.001.001.01>

3. UndertakingIssuanceAdvice <tsrv.002.001.01>

4. UndertakingIssuanceNotification <tsrv.003.001.01>

Amendment

5. UndertakingAmendmentRequest <tsrv.004.001.01>

6. UndertakingAmendment <tsrv.005.001.01>

7. UndertakingAmendmentAdvice <tsrv.006.001.01>

8. UndertakingAmendmentNotification <tsrv.007.001.01>

9. UndertakingAmendmentResponse <tsrv.008.001.01>

10. UndertakingAmendmentResponseNotification <tsrv.009.001.01>

Non-Extension

11. UndertakingNonExtensionRequest <tsrv.010.001.01>

12. UndertakingNonExtensionNotification <tsrv.011.001.01>

26

Messages – 2/2

Termination

13. UndertakingTerminationNotification <tsrv.012.001.01>

Demand Processing

14. UndertakingDemand <tsrv.013.001.01>

15. ExtendOrPayRequest <tsrv.014.001.01>

16. ExtendOrPayResponse <tsrv.015.001.01>

17. DemandRefusalNotification <tsrv.016.001.01>

18. DemandWithdrawalNotification <tsrv.017.001.01>

General (Technical)

19. TradeStatusReport <tsrv.018.001.01>

General (Business)

20. UndertakingStatusReport <tsrv.019.001.01>

27

28

Undertaking Issuance Message …

Project timeline

• Initial community consultation (BE, US & HK)

• Define potential scope

Q3 2010

• Submited for ISO approval Q3

2012

• ISO Publication

• http://www.iso20022.org/trade_services_messages.page?

2013

29

BPO – the next generation

What is the challenge today?

31

Seller Buyer

LC Advising Bank

LC Issuing Bank

Do

cum

ents

Contract

Documents

Do

cum

ents

Advic

e

Ap

plic

atio

n

Issuance

Payment

Letter of

Credit

Bank risk / financing services

based on paper document

processing

Seller Buyer

Seller’s

Bank

Buyer’s

Bank

Contract

Payment

Open

Account

Documents

Bank services limited to

payment processing.

If any risk, Credit Insurance or

Payment Guarantee is added

Continuous

shift

The opportunity for banks and corporates

32

Seller Buyer

Seller’s

Bank

Buyer’s

Bank

Contract

Payment

Open

Account

Documents

Bank services limited to

payment processing

Seller Buyer

Recipient Bank

Obligor Bank

Contract

Documents

Payment

Bank

Payment

Obligation

Bank risk / financing services

based on electronic trade data

Data

Data

Data

Bank-assisted

open account

The BPO enables bank-assisted Open Account trade

The Bank Payment Obligation (BPO) A new alternative instrument for trade settlement

A BPO is an irrevocable

undertaking given by one

bank to another bank that

payment will be made on a

specified date after a

successful electronic

matching of data according to

an industry-wide set of rules.

New ICC Uniform Rules for BPO

Publication: May 2013

Designed to complement and not

to replace existing solutions

33

ICC Uniform Rules for

Bank Payment

Obligations

The BPO builds upon electronic data matching

34

Matching of

contract data

Transfer

of funds

Matching of

data

Buyer Seller

1) Sign contract (PO)

2) PO data 3) SO data

4) Match PO/SO data & confirm

6) Match requested datasets & confirm

5) Datasets

8) Transfer funds

7) Debit buyer 9) Pay seller FIN

PO= Purchase Order; SO= Sales Order

TSU

Bank A Bank B

Buyer Seller

Bank A Bank B

TSU

Buyer Seller

Bank A Bank B

BPO is established

BPO is due

Trade is settled

5) Datasets

The BPO relies upon ISO 20022 messaging

Any channel /

any format /

any solution

Trade

Matching

Application

Any channel /

any format /

any solution

Seller Buyer

1 2 3

URBPO

Ind

ustr

y

sta

nd

ard

s

Co

mm

erc

ial

so

lutio

ns

• SWIFT's Trade

Services Utility (TSU)

• Bank portal

• SWIFT's SCORE

• Paper

• Bank portal

• SWIFT's SCORE

• Paper

35

The BPO is backed by ICC rules

36

A new trade instrument offering payment assurance,

risk mitigation and financing, based on standard structured data,

industry rules and electronic matching

ICC Uniform

Rules for

Bank Payment

Obligations

37

Trade business evolution

Source: BCG workshop with SWIFT, June 2012

Source: SWIFT Statistics(2012)

L/Cs in Asia-Pacific

37

49 banks adopting BPO (update as at 3 January 2013)

Including 15 from the top20 Trade banks

38

Thank you

39