The rules for the bank payment obligation (BPO) have been unanimously approved by members of the International Chamber of Commerce’s Banking Commission.
The vote took place in Lisbon and marks the first time any product – including letters of credit – has been given the full support of the board.
The meeting in Lisbon was convened to thrash out the regulations to which BPO-led transactions should adhere to. Since the ICC isn’t a government body, the findings aren’t legally binding. However, any ICC member will be expected to uphold them should they wish to use the BPO to conduct trade.
The BPO is a means of automating trade payment. It is an irrevocable means of one bank paying another on a specified date after a trade has taken place and allows banks to mitigate the risk for both buyers and sellers. It also alleviates the strain of manual payments processing that are associated with traditional trade finance.
Last year, the first end-to-end automated trade finance deal using the BPO was initiated by BP in Singapore to facilitate payment by one of its buyers, the Omani petrochemical firm Octal. The transaction leveraged Standard Chartered’s Straight2Bank solution and Swift’s trade service utility platform.
It’s hoped that given the unanimous approval of the rules, the BPO will be used more regularly in the trade finance industry. However, chairman of the Banking Commission Kah Chye Tan warned that the tool is far from being industry standard.
He told GTR from the Lisbon event: “One has to be aware that this is just the end of the start. It’s a long journey before the BPO will be able to attract mass-commercialisation. In the next six to 12 months we shouldn’t expect a mass pickup of the BPO. We should give it a few years to get embedded in the industry. We must get more feedback from the industry; from the exporters and banks across the globe. We’ll definitely have to do further refinement of the rules according to this feedback before we can expect mass-adoption of this product.”
Tan says the ICC will be embarking on a programme of training and education over the next year and is hopeful that the obvious demand for the BPO will lead to its acceptance across the industry.
He says: “Even though it’s a brand new product to the ICC we are able to achieve unanimous support for it, which shows the demand for it. It says a lot because even for the most popular product we have, the letter of credit, we’ve never received 100% approval.”