ICC rules for trade finance: UCP 600, ISP98 and URDG 758

What are the ICC rules, and why do they matter?

The ICC, based in Paris, drafts uniform rules, mainly through its Banking Commission, so that banks and traders in different countries apply the same practice. Their force is contractual: a credit, standby or guarantee becomes subject to them by stating so, for example “subject to UCP 600”. In SWIFT messages, the applicable rules are indicated in a dedicated field (40E in an MT700 documentary credit, 40C in an MT760 guarantee or standby).

The rules do not replace national law. Questions they do not address, such as fraud or court injunctions, are left to the governing law. Choosing the right rules, and stating them clearly, makes the outcome of a drawing far more predictable for every party.

What the ICC does not do

The ICC writes rules and publishes guidance. It does not issue, register, verify or guarantee instruments, and it does not approve trading programmes. Regulators such as the US SEC have warned that promoters of fraudulent “prime bank” schemes falsely claim that instruments are issued or guaranteed by well-known organisations, including the ICC. A reference to “ICC rules” in an offer proves nothing about whether an instrument exists; see our trade finance fraud guide.

Which rule applies to which instrument?

The ICC also publishes rules for documentary collections (URC 522) and bank-to-bank reimbursements (URR 725), which often appear alongside documentary credits.

What are the key concepts of UCP 600?

• Irrevocability: a credit is irrevocable even if it does not say so (article 3).
• Independence: the credit is separate from the sales contract, even if it refers to it (article 4).
• Documents, not goods: banks deal with documents, not with the goods or services (article 5).
• Complying presentation: one that is in accordance with the terms of the credit, the applicable UCP provisions and international standard banking practice (article 2).
• Examination period: a maximum of five banking days following the day of presentation (article 14(b)).
• Presentation deadline: original transport documents no later than 21 calendar days after shipment, and never after expiry (article 14(c)).
• Refusal: a bank that refuses must send a single notice listing each discrepancy, no later than the close of the fifth banking day following presentation (article 16).
• Tolerances: “about” or “approximately” allow a tolerance of up to 10% on the amount, quantity or unit price to which they refer (article 30).
• Transfer: only a credit expressly designated “transferable” can be transferred, and only once (article 38).
• Force majeure: UCP 600 gives no extension of expiry if a bank’s business is interrupted (article 36).

Our letter of credit guide shows how these rules work in a real transaction.

What do eUCP and ISBP 821 add?

eUCP Version 2.1 is a supplement to UCP 600 for credits that allow presentation of electronic records, alone or together with paper documents. It applies only when the credit says it is subject to the eUCP.

ISBP 821 is not a separate set of rules to incorporate. It records the practice that document checkers apply under UCP 600: how to read dates, signatures, corrections, the description of goods, transport and insurance documents. In practice, it is the reference for deciding whether a document is discrepant.

How does ISP98 differ for standby letters of credit?

A standby letter of credit is designed to be drawn only if the applicant fails to pay or perform. ISP98 was written for that purpose by the Institute of International Banking Law & Practice and endorsed by the ICC Banking Commission. Although UCP 600 can also apply to standbys, ISP98 covers only standbys and does not apply to commercial documentary credits.

• Independent, irrevocable, documentary and binding: the core characteristics set out in rule 1.06.
• A demand is normally required, whereas under UCP 600 the presentation itself triggers payment.
• Notice of dishonour must be given within a reasonable time: within three business days is deemed not unreasonable, beyond seven business days is deemed unreasonable (rule 5.01).
• Closure on expiry: if the place of presentation is closed on the last business day for presentation, the expiry is extended to the 30th calendar day after it reopens, unless the standby provides otherwise (rule 3.14).
• Extend or pay requests and syndication are specifically addressed (rules 3.09 and 10.01).
• Transfer: unless the standby provides otherwise, a transferable standby can be transferred only in full (rule 6.02).

What are the key concepts of URDG 758?

URDG 758 govern demand guarantees and counter-guarantees, domestic or international, when the guarantee expressly indicates that it is subject to them.

• Irrevocable on issue, even if the guarantee does not say so, and issued when it leaves the guarantor’s control (article 4).
• Independence from the underlying relationship and from the application (article 5).
• Supporting statement: a demand must be supported by a statement indicating in what respect the applicant is in breach, unless the guarantee expressly excludes it (article 15).
• Examination: the guarantor has five business days following the day of presentation to examine a demand (article 20).
• Extend or pay: where a demand includes a request to extend as an alternative, the guarantor may suspend payment for up to 30 calendar days (article 23).
• Governing law: unless otherwise stated, the law of the place of the guarantor’s issuing branch or office (article 34).

How do you choose the right rules?

• Payment for goods against shipping documents: a documentary credit subject to UCP 600, with eUCP added if electronic documents will be presented.
• Back-up for payment or performance, issued as a standby: ISP98 is purpose-built; UCP 600 is sometimes chosen when the beneficiary prefers it.
• Guarantee for a contract, tender or advance payment: URDG 758, especially for international projects and counter-guarantee structures.

Whatever the choice, state the rules and their version explicitly, and avoid mixing incompatible clauses. The beneficiary may insist on its own model; review it before the contract is signed. Our comparison of LC, SBLC and bank guarantee helps choose the instrument itself.

How Star Alliance helps

Star Alliance reviews your transaction, recommends which rules the proposed wording should refer to, prepares the file and the draft text, and coordinates with the parties and the issuing institutions. The issuing institution decides on the final wording and on issuance. Contact us to have a draft reviewed.

Frequently asked questions