David Meynell and Gary Collyer provide a refresher on the Bank Payment Obligation and why it might need an additional kick start
A Bank Payment Obligation (BPO):
is an irrevocable and independent undertaking given by an obligor bank (typically the buyer’s bank) to a recipient bank (the seller’s Bank) to pay a specified amount on an agreed date under the condition of a successful electronic matching of data according to the Uniform Rules for Bank Payment Obligations (URBPO);
Constitutes a legally binding, valid and enforceable payment obligation of an obligor bank to a recipient bank under the appropriate standard of law, enforceable in accordance with its terms;
Is a technology independent instrument based on ISO 20022 XML that can be used on any open Transaction Matching Application (TMA) such as the SWIFT Trade Service Utility platform (TSU); and
Is not a ‘lite’ letter of credit nor an electronic letter of credit.
The term ‘Bank Payment Obligation’ is not covered by copyright, is not subject to any intellectual property right restrictions and does not require SWIFT to be the communications service provider.
At this stage it should be noted that a BPO is a bank-to-bank arrangement involving an undertaking given by a bank (often the buyer's bank) to the bank of the seller (who will become known as the recipient bank). Interaction between each of these banks and their respective clients is outside the scope of the BPO.
In a BPO transaction, there is what is known as the ‘collaborative space’ and ‘competitive space’.
The collaborative space is the environment where the involved banks utilise the same technology (for example the same transaction matching application) for the purpose of facilitating the trade transaction between the buyer and seller. These banks utilise ISO 20022 TSMT messages and the standards attached to such messages, to deliver and receive data.
The competitive space refers to the interaction of each bank with its buyer or seller client, for example in the delivery and receipt of data, the reporting of the status of each transaction or the possible financing of a transaction where a BPO has been issued. Banks will be required to develop their own services and products around the BPO.
Is there a need for BPO 2.0?
Looking back through old files can be quite a revelation. We were both members of the Uniform Rules for Bank Payment Obligations (URBPO) drafting group, with Gary Collyer serving as chair.
As agreed in the original memorandum of understanding signed between ICC and SWIFT in September 2011, and the terms of reference provided to the drafting group, the scope of the rules lies solely in the bank-to-bank space.
Accordingly, the rules do not cover the interaction between a bank and their corporate client. This is considered to be the competitive space between banks.
It is made very clear in article 1 of the URBPO that a BPO relates to an underlying trade transaction between a buyer and a seller. However, as stated in article 6, a BPO is separate and independent from the sale or other contract on which the underlying trade transaction may be based.
A set of guidelines were created to assist banks in the creation of customer contracts or agreements for use with BPO related services or products. The intent of the document is not to provide a contractual text but to offer a suggested list of categories, and the individual components within those categories that should be considered when drafting a customer contract or agreement.
Comment was often made during the formulation of the rules and thereafter as to whether or not a future version should include corporates. For a number of those involved back in 2011, it was always envisaged that a phase 2 would incorporate corporate interaction – buyer and obligor bank, seller and recipient bank.
However, a review of recent commentary would suggest that this concept has been lost in the mists of time. Is it time to resurrect it? It certainly may be worth investigating in order to ascertain if such an approach could give the BPO an additional kick-start.
Dave Meynell and Gary Collyer are co-owners of Trade Finance Training. More information on these topics can found on their website