UCP 600 Questions and Answers
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| UCP 600 Q&A with explanations for letters of credit |
1. What is UCP 600?
Answer:
UCP 600 is a set of rules published by the International Chamber of Commerce (ICC) that governs letters of credit in international trade. It became effective on 1 July 2007, replacing UCP 500.
2. What does “LC” stand for in UCP 600?
Answer:
LC stands for Letter of Credit, a financial instrument issued by a bank to guarantee payment to a seller under specific conditions.
3. Is UCP 600 a law?
Answer:
No, UCP 600 is not a law. It is a set of contractual rules that apply when parties agree to use it in the terms of their letter of credit.
4. What is the role of the issuing bank under UCP 600?
Answer:
The issuing bank undertakes to honor a complying presentation by the beneficiary, provided all terms and conditions of the credit are met.
5. What is a “complying presentation”?
Answer:
A complying presentation means that the documents submitted by the beneficiary strictly comply with the terms and conditions of the LC and UCP 600 rules.
Intermediate-Level Questions
6. How many articles are in UCP 600?
Answer:
There are 39 articles in UCP 600.
7. What is the standard examination period for banks under UCP 600?
Answer:
According to Article 14(b), a bank has a maximum of five banking days following the date of presentation to determine if the presentation is complying.
8. What does UCP 600 say about “original” documents?
Answer:
UCP 600 Article 17 states that a document is considered original if it is marked as original or appears to be signed or otherwise authenticated as original.
9. Can UCP 600 apply to standby letters of credit?
Answer:
UCP 600 is primarily for commercial letters of credit, not standby LCs. For standby LCs, ISP98 or UCP 600 may apply only if parties specify it in the agreement.
10. What is the meaning of “honor” under UCP 600?
Answer:
As per Article 2, to “honor” means to:
Pay at sight if the credit is sight
Incur a deferred payment undertaking and pay at maturity
Accept a bill of exchange (draft) and pay at maturity
Advanced/Practical Questions
11. What happens if documents are discrepant under UCP 600?
Answer:
The bank may refuse the documents and must notify the presenter with a single notice stating all discrepancies within 5 banking days.
12. What is the treatment of non-documentary conditions?
Answer:
Article 14(h) of UCP 600 says that non-documentary conditions (e.g., “shipment must be on a sunny day”) shall be disregarded.
13. Who bears the risk for lost documents in transit between banks?
Answer:
Generally, the nominated bank bears the risk until the documents reach the issuing bank, unless otherwise agreed.
14. Does UCP 600 allow for electronic presentation of documents?
Answer:
No, UCP 600 governs paper-based documents. For electronic presentations, eUCP (Electronic Supplement to UCP) is used.
15. Can UCP 600 be modified?
Answer:
Yes, the terms of the credit can override UCP 600 provisions if clearly stated in the credit. UCP 600 acts as a default set of rules.
Here are more critical and practical UCP 600 questions and answers, focusing on challenging scenarios, document handling, risk, and interpretation — suitable for advanced learners, professionals, or trade finance interviews:
Critical UCP 600 Questions and Answers
1. What is the bank’s obligation if documents are presented after the expiry date but within the presentation period?
Answer:
As per Article 14(c), documents must be presented within the validity of the credit and within 21 calendar days after shipment (unless otherwise specified). If the credit has expired, even if within 21 days, the bank is not obligated to honor.
2. Can a bank reject documents for minor spelling errors?
Answer:
Yes, under UCP 600, banks examine documents on their face. Even minor discrepancies (e.g., spelling differences in the applicant’s name) can lead to rejection unless they do not "constitute a discrepancy" under documentary practices. However, Article 14(d) allows some flexibility where data does not conflict.
3. What does UCP 600 say about the consistency of data across documents?
Answer:
Article 14(d) requires that data need not be identical but must not conflict. This means minor differences (e.g., “ABC Ltd.” vs. “ABC Limited”) may be acceptable, but material inconsistencies are not.
4. Is a bill of lading issued “to order” and not endorsed acceptable under UCP 600?
Answer:
No. If a B/L is issued "to order," it must be endorsed by the shipper or the appropriate party. Failure to endorse it makes the B/L non-negotiable, and thus non-compliant.
5. What happens if the LC requires a document that is not usually issued in trade?
Answer:
Under Article 2, banks deal with documents, not goods. If an unusual document is required and not provided, it is a discrepancy — even if the goods shipped are correct. The beneficiary must comply with documentary requirements, or request an amendment.
6. Can a nominated bank refuse to honor a complying presentation?
Answer:
Yes. A nominated bank is not obligated to honor unless it has confirmed the credit. Only the issuing bank has a firm obligation to honor, as per Article 7. A nominated bank acts on a best-effort basis unless it agrees otherwise.
7. What if the LC does not specify the number of originals required?
Answer:
Per Article 17(b), one original of each document is sufficient, unless otherwise stated in the credit.
8. How are discrepancies handled when documents are sent in multiple mailings?
Answer:
UCP 600 generally expects a complete presentation at one time. If documents are sent separately, the bank may consider it incomplete, unless otherwise permitted in the credit. This may result in a discrepancy.
9. Can a document be issued and signed by the beneficiary themselves?
Answer:
Yes, unless the LC explicitly prohibits it. For example, a certificate of origin or packing list can be signed by the beneficiary if not otherwise specified in the LC. However, some documents (e.g., inspection certificates) must be from an independent third party if required.
10. What is the rule if a document is dated after the date of presentation?
Answer:
A document dated after the presentation date is not acceptable, as it implies future data not available at the time of presentation. UCP 600 does not permit post-dated documents.
11. What if the transport document is not marked “on board”?
Answer:
Under Article 20, the bill of lading must include an “on board” notation and a date of shipment. If missing, the bank will treat it as a discrepant document, even if the goods were actually shipped.
12. Is a photocopy of a signed invoice acceptable?
Answer:
No. An invoice must be original and signed (if required). Photocopies do not meet original document requirements under Article 17.
13. What if a document is issued before the issuance date of the LC?
Answer:
UCP 600 does not prohibit documents issued before the credit issuance date unless the credit specifically requires documents to be issued on or after a certain date.
14. Is a transport document consigned “to the issuing bank” valid?
Answer:
Yes, if the credit allows it. Otherwise, the transport document must be consigned to the order of the issuing bank, applicant, or as per credit terms.
15. What’s the bank’s liability if it honors documents later found to be fraudulent?
Answer:
Banks under UCP 600 act in good faith, relying solely on documents. If documents appear compliant, the bank is not liable even if fraud is discovered later — unless bad faith or negligence can be proven.
