New Uniform Rules for Forfaiting (URF) Comes into Effect on 1 Jan 2013

ICC’s new Uniform Rules for Forfaiting (URF) came into effect on 1 January after more than three years of intensive drafting. The rules, which were approved at the last ICC Banking Commission meeting in Mexico City, will govern a market estimated at more than US$300 billion a year.

Forfaiting, a form of international supply chain financing, provides a vital finance component for a number of trade instruments, including letters of credit, bills of exchange, promissory notes and invoice purchases. The new URF provide the contractual framework to transform these instruments into viable banking investments.

The URF, developed in cooperation with the International Forfaiting Association (IFA) complement other ICC uniform rules, notably the Uniform Customs and Practice for Documentary Credits (UCP), ICC’s universally used rules on letters of credit. Letters of credit are largely forfaited, especially in China, where forfaiting constitutes the bulk of transactions.

The URF are designed for use in both primary and secondary markets. They deal with the needs of these two markets by employing mirror provisions amended only when necessary to take account of structural and commercial differences. For ease of use, the rules are accompanied by model form agreements for both markets.

Since forfaiting normally operates without recourse to the seller, the URF provide certain safeguards to guarantee that transactions sold into the market are robust. Among these are a provision specifying that all parties in both primary and secondary markets are liable if certain basic breaches occur, such as the lack of authority of either the buyer or seller to sign transaction documentation.

The ICC Banking Commission’s entrance into this new field is an indication of its expanding role, encompassing the entire field of trade finance. Next on its agenda will be approval of rules for the Bank Payment Obligation (BPO), the joint ICC/SWIFT product that places a legal obligation on the issuing bank to pay the recipient bank subject to the successful electronic matching of compliant data.

The ICC Banking Commission is the world’s rule-writing body for the banking industry. With more than 600 members in more than 100 countries, the Commission has gained a reputation as the authoritative voice in the field of trade finance.

[Source: ICC Paris 7 January 2013]