q&a document on bank payment obligation and trade services utility

2011 Supply Chain Finance for Corporates webinars – Questions and Answers

Version of December 2011

A. Questions related to the presentation materials

QUESTION ANSWER DATE A1 Can I have a copy of this presentation later? Copies of the presentation materials are circulated to those who attend

the webinars and then posted on our LinkedIn “Supply Chain on SWIFT” Group. We also run repeat webinars for people who may not have been able to attend first time.

30/06/11 & 07/11/11

A2 We are interested to become a participant member for BPO (Bank Payment Obligations). How do we go forward?

As a bank you must first register to the SWIFT Trade Services Utility (TSU). You can register on-line via www.swift.com .The registration fee varies according to the global tier of the bank. Once registered, Swift will assist your bank to go live. For further information please email us at [email protected] .

07/11/11

A3 What do you mean by (50EUR/Txn) lower rate of investigation under operational benefits?

Operational savings will include a reduction in the number of discrepancies thanks to an improvement in the matching rate that can be achieved by electronic data presentation. By reducing the number of discrepancies, banks and corporates will be able to reduce the investigation effort, avoiding disputes, delays etc. Whilst the impact will vary from business to business, the average savings are estimated at 50 EUR per transaction.

30/06/11

A4 Can you explain the reasons behind the risk differential between BPO & LC?

Essentially there should be no difference between the BPO and the L/C in terms of the ability to mitigate risk. The main difference today is that the L/C has an established and proven track record whereas the BPO remains in its infancy. The absence of a track record today in some cases inhibits the acceptability of a BPO. This will only be addressed by building confidence over time through increased commercial adoption.

30/06/11

B. Questions related to documentation

QUESTION ANSWER DATE B1 Where can I find the BAFT-IFSA document in relation to

BPO? In December 2010, BAFT-IFSA published a document related to standard product definitions for open account trade processing and open account trade finance (copy attached for reference purposes). The aim of the

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document was to promote the adoption of a common language. The document does not explicitly reference BPO. SWIFT has taken those BAFT-IFSA definitions and used them in relation to services that can potentially be supported by BPO. Again this is all about promoting the wider adoption of a common language.

B2 What SWIFT document includes the detailed description of the BPO?

See the TSU Service Description (copy attached for reference purposes). 30/06/11

B3 Have you any example of an agreement between the bank and its customer? For example : positive match = buyer commits to pay the obligor's bank at the maturity date

SWIFT does not provide copies of bank documentation. However, the TSU Service Description, chapter 8 (copy attached for reference purposes) contains guidelines related to sample clauses that banks may optionally wish to include in their customer agreements.

30/06/11

B4 Can I find BPO documents on swift.com or ICC.com? You can access further information related to TSU & BPO on swift.com. Please visit www.swift.com/trade_services_utility and/or join our “Supply Chain on SWIFT” community on LinkedIn.

30/06/11

B5 Is it possible to look through the main fields of the BPO? The documentation relating to the relevant tsmt messages can be downloaded from the ISO web site www.iso20022.org. Go to the catalogue of messages and find the tsmt messages. There is a PDF named “Message definition report”. In the PDF look for a data structure named “PaymentObligation”. This is the BPO data. It is in several messages, for example in the InitialBaselineSubmission message (tsmt.019).

07/11/11

B6 Where are the BPO rules available from now? Are they free or for purchase?

See the TSU Service Description, chapter 7 (copy attached for reference purposes). This document is now in the public domain, and available free of charge.

07/11/11

C. Questions related to costs/pricing

QUESTION ANSWER DATE C1 What are the costs/expenses to be a TSU member? There is an annual subscription fee that depends on the global tier of the

institution. Details available from SWIFT on request. There is also a small fee of 1.5 EUR/month for each live transaction. The fee is transaction based not message based so an individual transaction may carry as many messages as required at no additional cost. There is currently a

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promotional period in force until end 2012 during which time the transaction processing fee has been reduced by 50% to 0.75 EUR/month.

C2 Will SWIFT charge its bank customers for each BPO transaction? Presumably banks expect to charge fees to their customers?

Yes. SWIFT normally charges its bank customers 1.5 EUR/month for each live transaction. There is currently a promotion in force until end 2012 during which time this fee has been reduced by 50% to 0.75 EUR/month. The banks will set their own tariffs when charging the corporate customer. Those charges will vary from bank to bank.

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C3 How much cheaper do you expect the BPO to be compared to the cost of LCs?

Product pricing is a matter for individual service providers to determine. SWIFT cannot comment on this.

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C4 In term of costs, comparing BPO and LCs, do you agree that the BPO transaction should cost less than LCs? Do you have an idea about the costs for BPO vs. LCs?

In terms of processing, we believe the BPO should cost less than the LC because of the level of automation e.g. no manual checking of documents etc but again individual banks must determine their own pricing policy based not only on processing costs but quality of service, business benefits, product packaging etc.

30/06/11

C5 How will BPO fees compare to unconfirmed documentary L/C fees?

Each bank will set its own tariff. Charges will vary from bank to bank. 07/11/11

D. Questions related to standards

QUESTION ANSWER DATE D1 Is there any standard type of SWIFT messages already set

up for BPO? A set of ISO 20022 messages has been developed for the TSU and BPO. The relevant ISO 20022 tsmt messaging standards and related documentation are available on the iso20022 web site, page “Catalogue of ISO 20022 messages” tsmt.001-052. Please follow the link http://www.iso.org/UNIFI_trade_services_messages.page .

30/06/11

D2 What message types and documents are supported in BPO?

A set of ISO 20022 messages has been developed for the TSU and BPO. The relevant ISO 20022 tsmt messaging standards and related documentation are available on the iso20022 web site, page “Catalogue of ISO 20022 messages” tsmt.001-052. Please follow the link http://www.iso.org/UNIFI_trade_services_messages.page . The documents supported as part of a TSU transaction are: purchase order, commercial invoice, transport documents, insurance and certificates.

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D3 Why would anyone want to extend 20022 to overlap the existing ANSI X12 (and EDIFACT) purchase order? Why not translate 850 into TSU?

Users in different industries and operating in different geographies often have different business requirements and preferences. This is all about providing the user with choice. Translating 850 into ISO messages is also an option to send to the TSU. No-one is forced to use one channel versus another.

30/06/11

D4 I recommend against promoting the "minimum trade data" point, as banks must ask for more data than you mentioned in order to meet compliance rules - esp. OFAC.

The “minimum trade data” point was developed because there was a wrong perception in the market that TSU messages are always very complex, while in fact the number of mandatory fields is very small. We are simply getting across the limited amount of data that is mandatory in the TSU. This does not prevent banks from including other data elements as and when required in order to satisfy e.g. regulatory compliance.

30/06/11

D5 Is this available in FIN MT? No. The TSU uses a separate set of XML ISO20022 messages. 30/06/11 D6 Will there be specific FIN MTs replacing the rule of MT

7nn? If the question is about replacement of Category 7 common group messages (792, 795, 796, 798, 799) by more specific MTs, no such development is planned. This question is in any case outside the scope of TSU/BPO which uses XML ISO20022 messaging standards.

30/06/11

D7 Does BPO need MT7xx? Or is FIN messaging eliminated? Does BPO substitute or complement MT7xx?

In order to use a BPO today banks must be subscribed to SWIFT’s Trade Services Utility (TSU). The TSU does not make use of FIN messages so there is no need for MT7xx. The TSU uses a separate set of XML ISO20022 messages.

07/11/11

D8 What exactly is agreed in the establishment of the baseline?

The enforceability of a BPO ultimately depends upon the matching of data. The establishment of the baseline will determine exactly what data elements need to be matched in order for the BPO to be enforced. The baseline will normally include information extracted from the purchase order, details of the BPO (if any), payment terms and any other processing requirements. For a complete description of the baseline, you can download the documentation of the tsmt messages from the ISO web site www.iso20022.org. Go to the catalogue of messages and find the tsmt messages. There is a PDF named “Message definition report”. In the PDF look for a data structure named “Baseline” e.g. InitialBaselineSubmission message (tsmt.019).

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D9 Who decides the amount of data to be matched? The amount of data to be matched is determined by mutual agreement between the involved banks and is the result of the baseline

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establishment process. D10 Is there a pre-match status? Yes. It is possible to establish a pre-match status. Generally, after the

Trade Services Utility application compares data sets, it sends reports to all of the involved banks notifying them of the results of the comparison of the defined data elements. However, data sets can be submitted with the instruction to “pre-match”, in which case only the submitting financial institution will receive the results of the comparison. This is a test. The status of the transaction does not change as the result of a pre-match. Following a pre-match, data sets can be corrected if necessary. The data set must be submitted with an instruction to match in order for the transaction to progress.

07/11/11

D11 Is there a limit to how much data can be uploaded e.g. from insurance/certificates?

The Insurance data set contains a number of structured fields that can be matched by the matching engine (TSU), for example the InsuredAmount will be matched against the value of the goods shipped (from the invoice). There are also optional repeating fields for insurance clauses, so almost all of the insurance document could be input in the insurance data set, and forwarded to the other banks. However, it should be noted that it is not the purpose of the TSU to replace the current flow of documents between the parties to a commercial transaction. Sending text to the TSU and to other banks in the transaction is not the intention. The TSU does not match the text fields. You can download the documentation of the tsmt messages for the Insurance or Certificate data set from the ISO web site www.iso20022.org. Go to the catalogue of messages and find the tsmt messages. There is a PDF named “Message definition report”. In the PDF look for a data structure named “CertificateDataSet” or “InsuranceDataSet. You can find it in several messages, for example in the DataSetSubmission message (tsmt.014)

07/11/11

D12 Are there plans to standardise the required C2B communications under ISO 20022?

Yes. The same messages that are used for bank to bank communication (via the TSU) can also be used for corporate-to-bank messaging. Guidelines have been developed for this purpose and are available for viewing at http://www.swift.com/corporates/resource.htm

07/11/11

D13 Do carriers need to comply with the ISO 20022 tsmt messaging format for Bills of Lading in order to feed the

Carriers may wish to implement ISO 20022 tsmt to deliver Bills of Lading data to the banks. The banks will be required to transform such incoming

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TSU/BPO process? data flows into ISO 20022 tsmt in order to deliver the transport data set to the TSU. For details of what the data set message look like, please visit the ISO web site at www.iso20022.org , go to the catalogue of messages and find the tsmt messages. There is a PDF named “Message definition report”. Here you can see how the transport data set format compares with alternative forms of B/L.

D14 In a case where the LC requires groundnuts but the China certificate of origin says peanuts, both groundnuts and peanuts refer to one and the same thing. In BPO this would be a valid discrepancy. How would BPO solve this problem?

In such a case, the TSU would generate a mismatch report. On receipt of this report the banks have the option to accept the mismatch. In other words, they can immediately say, yes the data does not match but I do not care. Carry on. The discrepancy can be resolved almost immediately.

08/09/11

D15 What type of requirements are there to satisfy the baseline?

The baseline contains some minimum mandatory elements that must be matched. These include essential data such as amounts, dates, counterparty names etc Other data elements may be entered optionally in those cases where a more detailed matching process may be required.

07/11/11

E. Questions related to legal framework

QUESTION ANSWER DATE E1 Can you explain exactly what is meant by "ICC

endorsement of BPO"? An ICC BPO Working Group has been officially established with a view to recognising the BPO as an accepted market practice in much the same way as the LC has become an accepted market practice with the support of UCP. There are three main workstreams; legal framework, education and commercialisation. The BPO adoption process will eventually result in the publication by the ICC of a set of rules governing the usage of the BPO (similar to but much shorter/simpler than UCP). The only material difference between ICC rules and SWIFT rules is that SWIFT rules are TSU-specific whereas ICC rules will eventually support market adoption of the BPO regardless of any underlying technology.

30/06/11

E2 Is there an internationally accepted standard for the BPO e.g. similar to UCP 600? Or does the legal enforceability of the concept need to be checked in each jurisdiction?

The equivalent of UCP 600 for L/C in the case of the BPO is a set of rules available in chapter 7 of the TSU Service Description (copy attached for reference purposes). The legal validity and enforceability of the BPO

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under Belgian law has been independently examined and confirmed by a law firm, Allen & Overy in 2008. A copy of this legal opinion is available on request. In common with well established market practice, the BPO Rulebook does allow participating banks the freedom to agree on the choice of applicable law.

E3 Is there any international process standard to support BPO, such as UCP600 to the letter of credit? If yes, can you describe the brief content or its work plan?

The equivalent of UCP 600 for L/Cs in the case of the BPO is a set of rules available in chapter 7 of the TSU Service Description (copy attached for reference purposes).

30/06/11

E4 What is the time period for ICC adoption of the TSU rule book? What is the status of the ICC rules for the BPO?

The ICC Banking Commission has developed a plan to adapt and adopt the existing BPO Rulebook which currently forms part of the SWIFT TSU Service Description. A dedicated working group has been set up to execute that mission. It is anticipated that the ICC BPO rules will be officially published by the ICC Banking Commission in Q1 2013. These rules will be technology-independent. The only material changes that need to be made relate to the availability of the BPO through alternative technology platforms i.e. de-coupling the BPO from the mandatory use of the TSU.

30/06/11 & 07/11/11

E5 If you look at reverse factoring: how does the BPO solution help banks to overcome legal issues regarding the validity of the purchase of invoices?

The issuance of a BPO is not dependent upon the purchase of invoices. It is an individual bank decision how to collateralise its exposure.

30/06/11

E6 Does the ICC recognize BPO as a legally binding instrument?

The BPO is a legally binding instrument as per the TSU Service Description. It is not the ICC’s role to give the BPO legal recognition. The ICC is a private international organization. It is not a governmental body and therefore it does not make laws as such. It is the role of the ICC to make available a set of contractual rules that will serve to establish uniformity of practice so that practitioners do not have to cope with a plethora of conflicting national regulations. The universal acceptance of the UCP is a testament to the success of the ICC in establishing such rules for the adoption of the L/C. It is envisaged that the ICC will make available a similar set of rules that will enable the BPO to obtain universal acceptance. However, the BPO is already a legally binding instrument.

30/06/11

E7 In terms of risk mitigation, do you agree that there is no difference between BPO and L/C?

Both the L/C and the BPO can be used (a) as a means of mitigating risk (b) providing the exporter with an assurance of payment and (c) as a form of

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collateral for financing. The main difference today is that the L/C has a long established track record of usage with proven reliability in the case of dispute resolution. Relatively speaking, the BPO is still in its infancy.

E8 It is not clear to me who in the chain of the banks guarantees the correctness of the shipment of the goods as is the case in an export L/C where the exporter's bank verifies the truth and validity of the shipping docs.

According to the TSU Rulebook “a financial institution assumes no liability or responsibility for the accuracy, genuineness, validity or legal effect of any data received from its customer or any other party. However, a financial institution must ensure that the data it submits to the Trade Services Utility application accurately reflects the data and information it received.” In the case of a L/C, the bank does not verify the “truth” of the documents. It checks that the documents are compliant “on their face”. Under a BPO, the bank’s responsibilities are much the same.

30/06/11

E9 Under a BPO, the shipping documents are despatched directly by the seller to the buyer. How will the buyer be assured that the seller has shipped the goods in compliance with the purchase order? How does a BPO ensure that the electronic data exchanged is in line with the actual shipping documents?

The TSU supports the matching of data taken from the commercial invoice and transport documents to that established under the original purchase order. With a BPO, the relevant data can be extracted from the underlying transport documents and input into the TSU for matching. As with a L/C there is no way of checking beyond all doubt that the goods shipped are in line with what is described in the documents.

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E10 What is the current status of BPO legal standing? The validity and enforceability of the BPO under Belgian law has been independently examined and confirmed by a law firm, Allen & Overy in 2008. A copy of this legal opinion is available on request . Under the BPO Rulebook, banks are allowed to agree on a different applicable law. For such other jurisdictions, banks may wish to seek their own legal advice on the equivalent validity and enforceability of a BPO.

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E11 Does the Seller’s Bank have an obligation to pay, or only the Buyer’s Bank?

Under a BPO, the Obligor Bank (which is often but not always the Buyers Bank) carries the obligation to pay the BPO Recipient Bank (which is always the Sellers Bank). The obligation of the Seller’s Bank to pay the seller is outside the direct scope of the BPO and will be covered separately in the related agreement between the bank and the customer.

07/11/11

E12 If the Buyer’s Bank does not perform in a timely manner, is there an obligation on the part of the Seller’s Bank to pay the seller? If the Buyer’s Bank goes bankrupt, would the

No. The BPO relates only to the obligation of the Obligor Bank (often but not always the Buyers Bank) to pay the BPO Recipient Bank (always the Sellers Bank). However, under the service agreement between the

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Seller’s Bank be obligated? Seller’s Bank (BPO Recipient Bank) and the seller, the former may have taken on certain commitments which go beyond the BPO rules.

E13 If the buyer does not pay, who is responsible to pay the seller? Obligor Bank or Recipient Bank?

The only obligation arising from a BPO is that of the BPO Obligor Bank to pay the BPO Recipient Bank. The obligation of the BPO Recipient Bank to pay the seller as ultimate beneficiary will be covered in the underlying agreement between bank and customer.

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E14 If the Obligor Bank does not pay, is there any payment obligation from the BPO Recipient Bank to pay the seller?

No. The only obligation arising from a BPO is that of the BPO Obligor Bank to pay the BPO Recipient Bank. The obligation of the BPO Recipient Bank (Seller’s Bank) to pay the seller is outside the direct scope of the BPO and will be covered separately in the related agreement between the bank and the customer.

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E15 BPOs seem to be tied to individual transactions, similar to documentary L/Cs. Alternatively, could BPOs be provided which act in a way similar to Standby L/Cs?

No. BPOs are primary payment obligations linked to individual transactions. In this respect, they are similar in nature to commercial letters of credit and not standby L/Cs.

07/11/11

E16 Do providers of 3rd party documents such as bills of lading need to agree to the BPO format?

In some cases a primary bank e.g. the Seller’s Bank may wish to invite another bank (or branch of the same bank) to submit data sets (such as transport data) on its behalf. In this case, the other bank/branch will assume the role of a Submitting Bank and will be party to the transaction. As such, the Submitting Bank must explicitly accept its role and responsibilities in accordance with the terms of the established baseline which includes the BPO. However, in the case of a baseline amendment a Submitting Bank is not required to accept such amendments.

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E17 If mismatches are not agreed or cleared when will the BPO expire?

If mismatches are not agreed i.e. are explicitly rejected, then no payment is due. Data will have to be re-submitted. If no response is provided by the party that must accept or reject the mismatches, the TSU matching engine will consider that the mismatches have been implicitly rejected after a specified timeout. In any case, and independently of the above, the BPO will always contain an expiry date. Any amount due under a BPO for which conditions have not been met is no longer available after

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23:59:59 UTC on the expiry date in the established baseline.

E18 How are disputes between buyers and sellers handled? What if there are disputes after payment has been executed?

Disputes between buyers and sellers are outside the scope of the BPO. The BPO is a bank to bank obligation only.

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E19 How would a BPO prevent the shipment of rubbish or no goods at all? Hackers may create a fake e-bill of lading or e-air waybill. How would the BPO prevent this?

The BPO does not of itself prevent fraud. Banks submitting data to the TSU are under a duty of care to ensure that the data is complete and accurate and is consistent with the underlying documentation related to the shipment. This does not altogether eliminate the risk of fraud. Banks will be required to carry out the same KYC/compliance checks as now.

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E20 How would the BPO handle the sanctions clauses that are so common in L/Cs nowadays?

Sanctions screening must be performed on all BPO/TSU transactions. This is outside the direct scope of the TSU matching engine and should form part of the banks’ standard operating procedures. All parties to a BPO/TSU transaction will have access to the same level of information for screening purposes. Furthermore, each bank should take a view as to how it wants to behave towards sanctions clauses in contracts.

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E21 Is BPO going to replace eUCP? How would you position BPO versus eUCP? Is there any intention to integrate?

The construction of the ICC BPO rules will include a cross-reference to elements of both UCP and eUCP in order to ensure consistency. It is possible that some clauses from the eUCP may be integrated with the ICC BPO rules. However, the scope of the two sets of rules is different. The eUCP is a supplement to UCP designed to accommodate the presentation of electronic records (e.g. scanned images) under a letter of credit. The eUCP will continue to exist in its own right alongside ICC BPO rules. An additional advantage of the BPO is that it is underpinned by ISO 20022 messaging standards enabling fully automated data processing.

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E22 What is the difference between a BPO and a L/C using eUCP? How can transport documents like a bill of lading be handled under BPO?

The letter of credit and the BPO represent two alternative methods of payment. Where a letter of credit allows the presentation of electronic records the related terms of payment will be governed by eUCP as a supplement to UCP. If a BPO is used, the related terms of payment will be governed by the ICC BPO rules. In this case, the proposition is enhanced by the automated matching of data. Transport documents like bills of lading will provide a source of such data to populate the fields that are

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included in the transport data set. The information in the transport data set is matched against information in the baseline and other data sets. In this case, the transport (routing) information in the transport data set is matched against the corresponding transport (routing) information in the baseline.

E23 To what extent and where do you see a risk of fraud in TSU/BPO?

The risk of fraud exists no matter what the method of payment may be. The best protection against fraud in all cases will be KYC. Just as a bank deals in documents under a L/C, so a bank deals in data extracted from those same documents under a BPO. If the documents are false, the data will be false. In neither case would a bank concern itself with the underlying goods.

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E24 Is the handling of mismatches in BPOs comparable to the handling of discrepancies in L/Cs? Or are these subject to technical/non-documentary mismatching? Who is judging what is a mismatch? In LCs, guidance on discrepancy handling is given under UCP 600 and ISBP.

A mismatch in the TSU is comparable to a discrepancy in a L/C. In both cases, the information presented is inconsistent with what is expected. In the case of the TSU/BPO data is matched automatically. The result is instant and very clear. Either the data matches or it does not. If there is a mismatch the involved banks are given the opportunity to accept or reject the mismatch. If the mismatch is accepted the transaction can continue unabated. If the mismatch is rejected then data must be re-submitted in order to obtain an acceptable match.

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E25 How are “discrepancies” handled in the BPO process? Please contrast with how discrepancies are handled in the L/C process.

A discrepancy in a L/C is handled as a “mismatch” in a BPO. In both cases, the information presented is inconsistent with what is expected. In the case of the TSU/BPO data is matched automatically. The result is instant and very clear. Either the data matches or it does not. If there is a mismatch the involved banks are given the opportunity to accept or reject the mismatch. If the mismatch is accepted the transaction can continue unabated. If the mismatch is rejected then data must be re-submitted in order to obtain an acceptable match. The automated matching process removes the subjectivity commonly associated with manual processing, hence reducing the risk of delays, disputes etc.

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E26 Is it always necessary to have an agreement between banks?

All banks participating to a BPO/TSU transaction must subscribe to the TSU service and in so doing accept the terms set out in the TSU Service Description. The establishment of a baseline represents the agreement between banks for any given transaction. There is no need for bilateral

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agreements to be negotiated separately between banks. The TSU Service Description which includes the Rulebook is a multilateral contract between all participants.

E27 It seems that the bank issuing the BPO may itself be a risk. Under L/C, we can use a confirmation to cover such risk. Is there a similar approach available here?

The BPO is a bank to bank obligation. As such a BPO Recipient Bank may be taking on the risk that the BPO Obligor Bank does not pay. Since the BPO is bank to bank only the BPO cannot be “confirmed” in the same way as a L/C can be confirmed. However, the exact terms of payment would normally be covered in the Bank/Customer Agreement. This means in effect that in all cases that the seller’s own bank (which is always the BPO Recipient Bank) will be the bank that “confirms” payment to the seller.

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E28 Can a BPO be transferred or assigned like LCs? No. A BPO is a bank-to-bank obligation. As such, payment will be made from a BPO Obligor Bank (often but not always the Buyer’s Bank) to a BPO Recipient Bank (always the Seller’s Bank). The Seller may instruct the BPO Recipient Bank separately to execute payment in favour of a third party assignee who may have been responsible for the actual delivery of goods.

08/09/11

E29 What is the role of the recipient bank, a nominated bank or a confirming bank in UCP 600 context?

1) The BPO Recipient Bank is always the Sellers Bank and will always be the beneficiary of the BPO.

2) Physical documents are not presented to the bank so the role of a nominated bank does not apply. It is possible for a bank other than the Buyers Bank to act as the BPO Obligor Bank. It is also possible for a bank other than the Seller’s Bank to act as a Submitting Bank (submitting data on behalf of the Seller’s Bank).

3) A BPO is a bank-to-bank obligation. The BPO Recipient Bank which is always the Seller’s Bank will always take on the role of “confirming” payment to the seller in a separate Customer Agreement.

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E30 What is the maximum number of days for advice of non compliance from paying bank to recipient bank and from recipient bank to seller?

BPO rules only refer to terms between banks i.e. the BPO Obligor Bank(s) and the BPO Recipient Bank. It is the TSU that will generate the match report indicating whether a data set matches (i.e. is compliant) or not. In case of non-compliance, i.e. data mismatches, the BPO Recipient Bank (which is always the Seller’s Bank) and the BPO Obligor bank (if it is the Buyer’s Bank) are informed at exactly the same time. The Buyer’s Bank

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then has to accept or reject the mismatches. As soon as they reject or accept, the Seller’s Bank will be informed. If they do not accept or reject, the TSU will send “action reminder” messages every 7 days until the situation is resolved, or the transaction is closed for inactivity (under the life time expiry timeout). Terms between BPO Recipient Bank and seller will be included in the bank/customer agreement which is outside the direct scope of the TSU/BPO rules.

E31 In the BPO Rule book, is there anything like preclusion provisions as in UCP 600?

Article 16f of UCP precludes a L/C issuing bank from claiming that documents are not compliant if that bank fails to act in accordance with the provisions of the Article. There is no parallel situation with BPO since data is presented and matched electronically. Discrepancies are represented as mismatches which can be accepted or rejected automatically. A BPO Obligor Bank cannot refuse to honour a BPO when the data presented matches i.e. it is compliant with the terms of the BPO. So it is automatically precluded from claiming non-compliance.

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E32 Is there any amendment in BPO as in UCP 600? Yes. The BPO forms an optional part of a TSU baseline. It is, possible to amend a BPO in an established baseline provided the involved banks agree. In the case of multiple obligor banks, each bank just affirm its continued role in light of the amendment.

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E33 Is it necessary for the seller to confirm acceptance of the amendment before presentation or there is no such need until presentation of data from seller, working like UCP 600?

The seller is not a direct party to the BPO. It is the Seller’s Bank that must accept any amendments on behalf of the seller.

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E34 Is BPO bank-to-bank reimbursement under URR525 or adapted version thereof?

In a single TSU transaction it is possible to have multiple BPOs issued by multiple BPO Obligor Banks. Each BPO is the obligation of one Obligor Bank only. The Buyer’s Bank does not have to be an Obligor Bank. If multiple obligor banks are involved, the amount due by each is proportional to its share of the total of all BPO amounts. The role of a reimbursing bank does not apply in the sense that one BPO Obligor Bank would be obliged to pay if another BPO Obligor Bank failed to do so.

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E35 Could I get a copy of the current BPO rules? Will the ICC be changing the rules or will they be exactly as they are now?

The current BPO rules are included in Section 7 of the TSU Service Description. The ICC version of the rules will be entirely consistent though not completely identical to the existing rules. The main change is

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that the ICC rules will be industry-owned and therefore technology-neutral. In other words, all direct references to the TSU will be removed so that in theory at least it would become technically possible to transact a BPO across an alternative technology platform.

F. Questions related to accounting policy & capital treatment

QUESTION ANSWER DATE F1 Is the BPO an off-balance sheet solution for the sellers? From an accounting perspective, the BPO should be treated in a manner

similar to a letter of credit. Whether the BPO has to be reported on or off balance sheet will depend on its economic substance during its lifecycle and the uncertainty levels in terms of causality, timing and valuation of the obligation. The BPO constitutes a definite undertaking of the issuing bank, provided that the stipulated data is presented in accordance with the agreed BPO rules. At the time of confirming its role, the issuing bank (usually the importer/buyer’s bank) will record the BPO as a contingent liability in the off-balance sheet notes. Subject to the agreement made between the issuing bank and the importer/buyer, the importer/buyer is likely to mark a direct liability whilst a “confirmed” BPO would represent an asset to be reported in the balance sheet of the exporter/seller. Once the submitted BPO information is compliant and no discrepancies have been found, the obligation of the issuing bank becomes a direct liability. If an acceptance is discounted, the exposure becomes a cash item recorded as a loan/advance with recourse to the corporate. From that point on, the importer/buyer would report the BPO as an off-balance sheet liability in the notes. At this point it moves from being an unfunded obligation to an actual funded obligation for the issuing bank, and from a funded obligation to an unfunded obligation for the importer/ buyer.

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F2 What is the balance sheet treatment for the buyer when getting BPO issued? Is it non-funded bank borrowing?

See answer to question F1 30/06/11

F3 Accounting: is BPO an off balance sheet instrument? See answer to question F1 30/06/11 F4 Regarding regulatory impact, as documentation has Since the BPO today has no track record of usage, it is difficult to predict 30/06/11



dematerialized for open account & supply chain financing, have you seen any trend emerging in keeping regulators comfortable? For example, lack of B/L's would not provide sight into potential violations.

the approach of regulators. The electronic data submitted as part of the TSU/BPO transaction will contain all relevant information extracted from the underlying transport documents etc and should therefore constitute a sound basis for regulatory reporting, if required. At the same time, actual documents can still be exchanged physically or electronically, in parallel to the BPO data exchange.

F5 With the capital treatment of the BPO being treated the same as a commercial letter of credit by most banks, how do you see the BPO as being a much cheaper alternative to the L/C?

We expect the capital treatment of the BPO to be the same as that of a commercial letter of credit. Whilst the capital costs for the BPO and letter of credit would be similar, we expect the processing costs for the BPO to be significantly cheaper than for letter of credit, thanks to the electronic data presentation and matching.

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F6 US Importers must report Letter of Credit liabilities on their Balance Sheets as a type of "debt". How will Importers account for BPOs?

See answer to question F1 30/06/11

G. Questions related to usage

QUESTION ANSWER DATE G1 What is the development need on the bank's side? Banks will typically start by processing limited volumes on a semi-manual,

semi-automated basis using a free piece of standalone software, the TSU-Interface, supplied by SWIFT. Over time and once the business case has been made, banks would normally want to invest in back office integration in order to automate the workflow in support of enhanced STP. The size and effort of such a development project will vary from bank to bank. It may be done in-house or by licensing software from an accredited vendor such as Misys, China Systems, CSI Banktrade or ACI.

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G2 Can it work on a manual basis for a limited number of transactions?

Yes. Banks will typically start by processing limited volumes on a semi-manual, semi-automated basis using a free piece of standalone software, the TSU-Interface, supplied by SWIFT.

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G3 Is BPO part of the SCORE or MA-CUG proposition? The BPO is a bank to bank obligation which is offered as part of a bank to bank service, currently available via a bank to bank application called the Trade Services Utility (TSU). So the short answer to the question is no

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since SCORE/MA-CUG relates to corporate to bank communications over SWIFT. In the case of BPO, the corporate does not have to be ASWIFT user. However, the corporate-to-bank flows related to BPO transactions could be transacted by banks and corporates on SCORE or within MA-CUGs if that is their preference. The files can be structured in any format between banks and their customers. SWIFT developed some guidelines enabling corporates to make use of the same ISO 20022 messaging standards as are used by the banks in the TSU. Those messages could optionally be delivered to the bank in standard format e.g. via SCORE. Those guidelines are available for viewing at http://www.swift.com/corporates/resource.htm

G4 Does BPO include the credit documents collection? The TSU deals in data not documents. A BPO is an optional block of data incorporated in a TSU message called the baseline. The block of data specifies the matching conditions that must be met in order for the BPO to be enforced.

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G5 Are all the documents e.g. Bill of Lading etc electronic in BPO?

The TSU deals in data not documents. Relevant data elements are extracted from the underlying documents and mapped into standardised data sets including commercial, transport, insurance and certificates. Documents may still be exchanged physically or electronically as required outside the TSU.

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G6 How many banks are supporting BPO today? There are currently around 90 banks in 31 countries subscribed to the TSU (see attached).

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G7 My understanding for BPO is that both buyer bank and seller bank should enrol to this service. What is the existing bank footprint supporting this?

Yes, both buyer’s bank and seller’s bank must be enrolled to the TSU. See attached document for a summary of banks currently subscribed.

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G8 Is there any provision for the number of BPOs in, say,2012? No. We expect volumes to evolve as market awareness grows. 30/06/11 G9 If document matching will be at a minimum it means that

there will be no place for discrepancies like the old L/C's? So if the POs are matched and quality & quantity of goods match, what if certain documents to be presented under the BPO are not presented as required? Will it be a discrepancy?

A transaction is established in the TSU through the matching of data taken from the PO. This is called a baseline. Within the baseline, there is an option to include a BPO and the terms and conditions that need to be met in order for that BPO to be enforced. If data is not presented in accordance with the terms specified in the baseline, the issuing bank can either decide to accept the mismatches (discrepancies) or reject the

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http://www.swift.com/corporates/resource.htm�



mismatches in which case the BPO is not enforceable. The simplicity is that the checking of data can be limited to those elements that are directly relevant to the decision-making process and that in a data matching process, either there is a match or a mismatch, thus removing the subjectivity associated with manual processing.

G10 What happens if data are not fully compliant? Can the obligor raise discrepancies?

If the data is not fully compliant it will result in a mismatch which can either be accepted or rejected by the Obligor Bank.

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G11 From the answer I am hearing, there is a RMA/Key exchange required to establish bank to bank BPO relationship?

No. TSU banks do not communicate with each other directly but via the TSU application which sits on the SWIFT network. Consequently, no RMA keys have to be exchanged between the banks. The BPO is established as part of a transaction in the TSU. It can optionally be included in the TSU baseline at the start of the transaction or added at a later stage during the transaction lifecycle.

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G12 What is the minimum number of operations to be handled to subscribe to this service?

There are no minimum/maximum limitations. Some users have low volumes of high value transactions whilst others have higher volumes of typically lower value transactions.

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G13 Could you advise the names of the participating banks? The list of participating banks is attached for reference purposes. 30/06/11 G14 Can a corporate act like a bank in BPO (TSU?) and do for

example pre-financing with their suppliers? The TSU is a bank to bank application. It is only accessible to banks acting on behalf of their corporate customers. The bank can engage in pre-shipment finance on behalf of its customer.

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G15 I would like to know how you see the BPO processing procedures, compared to LCs. When you have a transaction on at sight basis and the documents will take about one week to be received by the buyer, for example? Will the payment be processed anyway?

Data processed via the TSU will specify terms and conditions for payment including the due date. The payment does not have to be processed unless/until the specified terms and conditions have been met. There is not really any difference here compared to L/C except of course that the data will be made available electronically.

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G16 I still see unclear why the importer would commit to the payment of a PO (which can be cancelled, supplier may not perform, etc.). How could I convince the importer of the advantages of confirming the PO?

It is a business decision as to whether the confirmation of a purchase order represents sufficient grounds to support a proposition for pre-shipment finance. This is typically regarded as higher risk than an offer of post-shipment finance based on a confirmed invoice. In some cases the importer may wish to support the supplier’s short-term working capital financing needs in order to secure the supply chain. It is all a matter of

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risk management.

G17 Will there be an open list of participating banks? The list of participating banks is attached for reference purposes. 30/06/11 G18 In post shipment SCF, the credit is offered to suppliers by

the buyer's bank based on the buyer's credit rating. This is how the supplier gets financing at a much cheaper rate that what they would get from their local bank. How do we provide this benefit under the BPO model where you encourage the supplier to work with its own bank?

It’s true that we are talking here about a 4-corner versus 3-corner model. Often there will be instances where a Buyer’s Bank cannot fully implement a 3-corner approach because of limited reach so the 4-corner is needed in order to facilitate a complete service. In such cases, the BPO is issued by the Buyer’s Bank (or possibly by a third party bank) in favour of the Seller’s Bank. Therefore, in financing the seller the Seller’s Bank is relying on receiving payment from the BPO Issuing Bank provided of course the seller can fulfil its contractual obligations. If this is treated as a bank risk (i.e. the risk is on the BPO Issuing Bank) it can have a positive influence on the Seller’s Bank’s pricing model. In some cases, the financing proposition may rely on some form of collaboration between the BPO issuing Bank and BPO Recipient Bank.

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G19 I am a seller. If I wanted to ask a buyer to commence using BPO versus L/C, what are the key features of a BPO which would make it attractive to the buyer to use the BPO versus an unconfirmed L/C i.e. how do costs compare etc?

Commercial pricing of competitive offerings is a matter for the banks to decide. It will vary from bank to bank. If you are a seller, the BPO discussion with your customers is likely to revolve around processing efficiency. For example, physical documents will not be required to pass through the banking system as they do today under a L/C. Data matching is performed electronically reducing the related risks of discrepancies, disputes, delays, demurrage charges etc.

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G20 Unlike a conventional L/C arrangement, is it correct that no documents will be sent to the banks?

Correct. No physical documents are required to be routed through the banking system. With a BPO, the banks deal in data, not documents.

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G21 Must a BPO always start from a PO or can it start from an Invoice?

The TSU/BPO transaction always starts with the establishment of a baseline i.e. an agreed position that is shared between the involved banks. Most of the time, a baseline would be established using data taken from the PO. However, it is technically possible to establish a baseline using data taken from the commercial invoice.

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G22 Is Bolero planning to get a BPO certificate? Bolero is not a registered software partner of Swift. Today, Swift is not aware of any plans Bolero may have regarding the BPO. If Bolero would wish to become BPO-certified they would first need to join the Swift

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partner programme and then develop the requisite messaging using ISO 20022 open standards. Provided Bolero could then satisfy Swift criteria, both technical and functional, they would qualify for a certificate.

G23 Do we need a BPO Recipient Bank if the Obligor Bank is initiating payables financing or receivables financing to the obligor?

There is no direct dependency between the issuance of the BPO in favour of the Recipient Bank and the provision of finance to the obligor. However, some banks have elected to package their solutions in such a way that these services can be combined. In other words, the Obligor Bank issues the BPO on behalf of the obligor in order to provide the seller with an assurance of payment/access to finance whilst at the same time offering extended payment terms to the obligor/buyer.

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G24 Can SMEs handle BPO operations with no need to ask a BPO service provider?

A BPO is a bank to bank obligation. To execute a BPO both the Obligor and the Recipient must be banks. So corporate of all shapes and sizes would always have to work with a bank of their choice to act as either Obligor or Recipient.

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G25 Is it correct that there is no step for the buyer to confirm/approve the invoice? Buyers are only notified of invoice submission by the seller? Therefore, the buyer can only validate the PO?

The baseline acts as an agreement between banks specifying the data that has to be presented in order that the BPO becomes enforceable. Thereafter, if the commercial data set contains zero mismatches there is no explicit step that additionally requires the buyer to confirm/approve the invoice data that has been presented since the data fully conforms to the terms of the original agreement i.e. there are no discrepancies between the invoice and the PO. However, if the commercial data set contains mismatches, these would be routinely referred to the buyer for acceptance/rejection.

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G26 Is there information in the payment instructions to match the appropriate BPO message?

There are two places where payment terms may be specified. The first is a mandatory field in the payment terms section of the baseline. The second is an optional field in the BPO section of the baseline. If the payment terms are missing in the BPO section of the baseline then the terms used in the mandatory payment terms section of the baseline will apply.

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G27 Is there any confirmation of a BPO, as with a L/C? Because a BPO is a bank to bank obligation then technically it cannot be “confirmed” in the same way as a L/C might be confirmed. The obligation of a BPO Recipient Bank (Seller’s Bank) tro pay the seller as ultimate beneficiary will be covered in the underlying bank/corporate agreement.

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G28 Is there such a thing as a transferable BPO, as in L/C? No. The beneficiary of a BPO will always be the Seller’s Bank not the seller so transferability is not an option. The seller can however instruct the Seller’s Bank to pay a third party who may have been acting as an agent for the actual delivery of goods.

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G29 What is the difference between a L/C and a BPO? A L/C requires physical presentation of documents through the banking system. Under a BPO those physical documents will be sent directly from seller to buyer, as in an open account transaction. However, selected elements of data which have been extracted from the documents will be routed through the banking system for the purposes of automated matching in order to mitigate risk and to support the value proposition for a financial service e.g. pre-or post-shipment financing.

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G30 Is there an option to provide finance to the buyer? A BPO Obligor Bank could offer extended payment terms to the buyer. This sometimes forms part of a “packaged” solution offered by the bank.

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G31 Is there an option to support reverse factoring/confirming? Reverse factoring/confirming is most commonly a 3-corner model proposition requiring one bank only. A BPO will be more relevant in a 4-corner model based upon an exchange of data between two banks, one acting on behalf of the buyer and the other acting on behalf of the seller. Service providers could use the TSU as a matching engine in support of a reverse factoring/confirming proposition but if only one bank is involved there is no requirement/role for a BPO.

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G32 Does this BPO solution only work well for buyers & sellers with an established trading history?

Not necessarily. Whatever the relationship between buyer and seller there will be alternative options available when negotiating payment terms. Some will favour L/C ; some will favour OA ; some will favour payment guarantees/standbys ; the BPO represents another option on the menu. The choice of one method over another is not solely dependent upon how well buyers and sellers know each other.

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G33 How relevant would the BPO be for SMEs taking into account the complexity of the instrument? Wouldn’t it be much simpler to just open a L/C? BPO seems more suitable for large corporations with established partners.

See G32 above. The BPO is another option on the menu. Generally, there will be propositions that revolve primarily around large exporters (e.g. payment assurance) or large importers (e.g. to support pre-or post-shipment financing to their suppliers). In either case, there may be a SME at one end of the supply chain, acting either as a customer of a large exporter or a supplier to a large importer. In operational terms, the process should be somewhat simpler and more efficient for a BPO than it

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is for a L/C since we are dealing in data and not documents. G34 How many BPO transactions have been done so far in

2011? Very few live transactions have been completed so far today. Most participants remain in test/proof of concept mode. The volume is expected to grow in light of increased awareness in the market and driven by corporate demand.

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G35 Will the BPO be a good alternative for documentary collections as well? If yes, what about physical documents?

A documentary collection may be regarded as a more secure alternative for the seller compared to trading on open account, but less secure than a L/C. The BPO would be more secure than a documentary collection since there would be an obligation to pay. This obligation would be based upon the presentation of data through the banking system rather than physical documents. The documents would be sent directly to the buyer.

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G36 Are you aware of any customer/vendor using SAP ERP that has implemented this solution?

Corporates using SAP ERP are adopting BPO. Standards have been developed to support corporate to bank messaging in support of this. However, we are not aware of any development work having yet been scheduled by SAP. This is not a barrier to adoption since there are middleware solutions available in the market today which can easily translate messages to/from the required standards.

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G37 With BPO, are documents sent electronically? Is it still necessary to mail originals?

Data extracted from the documents is exchanged electronically via the banks. The physical documents will still sent by mail. These documents do not need to pass through the banking system.

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G38 How will BPO affect factoring/reverse factoring? Is there an overlap in banking products?

Factoring and reverse factoring are alternative banking solutions that can be offered without the use of a BPO. It may be possible in some instances to enhance the value proposition for a factoring service with the addition of a BPO. For instance, factoring is a post-shipment offering based upon invoice discounting. A BPO can support financing propositions across the entire transaction lifecycle. Other differences include: the processing of factoring transactions is largely manual, BPO is fully automated; with a BPO you can obtain 100% financing, with factoring solutions it is always <100%; factoring is a corporate risk taken on a portfolio basis whereas BPO is a bank risk taken on a transaction basis; factoring can be with/without recourse, BPO is always without recourse. Reverse factoring is normally reliant on a 3-corner model involving one bank only, forcing customers to make use of closed proprietary platforms and

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solutions whereas BPO is based upon a 4-corner model making use of an open collaborative messaging platform.

G39 Does BPO provide for credit lines between banks? The marking of credit lines/limits falls within the operating procedures of individual banks.

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G40 Has any survey been done that describes what corporates are requesting and demanding from the TSU/BPO. What I am after is statements and facts of why corporates have shown interest in the BPO, as this will support our discussion with clients and stakeholders regarding the BPO.

The only official survey that has been conducted (in 2011 by Aite Group) was addressed to bank respondents only. It was considered premature to survey corporates given relatively low levels of awareness. However, some corporates who took part in Sibos 2011, for example Vale (Brazil) and BP Chemicals, have made public statements about the potential business benefits of using BPO. From the exporter perspective the case focuses on assurance of payment, having access to alternative forms of finance, reducing costs and improving process efficiency. There are quantifiable benefits in terms of reduced DSO. From the importer perspective the case focuses more on securing the supply chain and improving process efficiency.

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G41 Can BPO be used to effect 4 different payments (1) from buyer to middle man (2) who pays to a broker (3) who pays to supplier (4) who pays to a manufacturer, using one and the same BPO instead of 4 BPOs?

It is possible to have multiple BPOs in a single TSU transaction. However, there can only be one beneficiary (the Seller’s Bank) so the BPO might be used to trigger (1) but subsequent payments between (2) (3) and (4) would be outside the direct scope of the TSU and the BPO.

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G42 80% of trade is from SME who cannot afford to employ a technical officer to handle EDI messages or BPO messages or operations. Is there any service company to provide data input and other operational services for SME for a fee?

SMEs can often work with software partners who will act as a kind of service bureau for the purposes of preparing and processing the data. There are also bank portals available to support e-trade services for LCs, guarantees, BPOs etc.

08/09/11

G43 Does BPO allow use of software from other companies, such as China Systems instead of TSU?

Software partners like China Systems have developed applications that are complementary to TSU. Those partners can process the data on behalf of the banks/corporate but the data must go through the TSU for the purposes of matching and report generation. Third party systems will not perform the data match.

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G44 What (stepwise) does the importer’s bank, already on SWIFT, need to do to transition from Bills for Collection/ Letters of Credit to Open Account + BPO. Here the assumption is the exporter’s bank is already ready to go.

In order to make use of a BPO, both the importer’s bank and the exporter’s bank must be registered to the TSU. From that point on, we consider three levels of readiness: technical, operational and commercial. Technical readiness refers to the ability to generate, receive and process

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the complete range of structured ISO20022 tsmt messages. Operational readiness means an ability to satisfy the bank’s own internal compliance / risk management processes. Commercial readiness means an ability to deliver a business service / solution in accordance with the customer’s defined needs. For example, this may involve the ability to support a proposition for working capital finance.

G45 What does the exporter’s bank also need to do? This is not limited to questions such as (a) are there any waiting timeframes, if registration is involved for any of these steps? (b) what software changes would be required on either bank side? (c) are there electronic equivalents for other trade documents or are user banks left to find manual means of dealing with those? Here I refer to items such as pre-shipment inspection reports, etc

In order to make use of a BPO, both the importer’s bank and the exporter’s bank must be registered to the TSU. From that point on, we consider three levels of readiness: technical, operational and commercial. Technical readiness refers to the ability to generate, receive and process the complete range of structured ISO20022 tsmt messages. Operational readiness means an ability to satisfy the bank’s own internal compliance / risk management processes. Commercial readiness means an ability to deliver a business service / solution in accordance with the customer’s defined needs. For example, this may involve the ability to support a proposition for working capital finance.

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H. Questions related to the Trade Services Utility

QUESTION ANSWER DATE H1 Since TSU is a bank2bank model, am I correct to say that

the corporates (buyer/seller) need not be TSU members? Yes. The TSU is only directly accessible to banks. Corporates should pass the data to the banks and the banks will exchange the data via the TSU for matching purposes.

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H2 Do you have a TSU Readiness Certification program for the banks?

The TSU is a subscription based service (see enclosed list of participating banks). Every bank that is subscribed to the TSU should be technically ready to send and receive TSU messages, optionally including BPO. Having said that, it is fair to say that some banks are more advanced than others in terms of operational and commercial readiness. SWIFT does have a TSU/BPO Adoption Dashboard for banks which is publicly available. We don’t have a TSU Readiness Certification program today but would be willing to develop that if/when the need is confirmed.

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H3 How long will it take to set up this product / software? Every bank that subscribes to the TSU receives a free piece of standalone 30/06/11



software called the TSU-Interface. This software enables the bank to connect to the TSU. It is adequate for testing and training purposes and for processing limited volumes of live traffic. So it is technically possible for banks to get started quickly, say within 6 weeks. In the longer term, once the business case has been made, we would expect banks to invest in back office integration in order to automate the workflow and position themselves for higher volume demand.

H4 How many TSU users do you have currently? There are approximately 90 banks in 31 countries subscribed to the TSU. 30/06/11 H5 To use BPO, BOTH banks have to have access to TSU? Yes. Both the Buyer’s Bank and Seller’s Bank must subscribe to the TSU

today. If there are additional players such as third party Obligor Banks involved they must also be subscribed to TSU. Under ICC rules it is envisaged that the commercial availability of the BPO will eventually become technology neutral i.e. supported by alternative platforms/service providers.

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H6 Do you have plans to support documents / images / pdfs attached to a TSU transaction in future releases (similar to 798 solution using FileAct)?

All of the data attached to TSU/BPO transactions is structured between banks using ISO 20022 standards (TMST messages). The TSU does not dematerialise documents. It is a vehicle for exchanging data elements extracted from trade documents. Documents, images, PDFs etc can be exchanged separately. One optional channel for exchanging such items would be FileAct (as is the case with the MT 798).

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H7 Is TSU available to mid-size corporates? What if my trade partner is a mid-size not yet on the TSU platform?

The TSU is a bank to bank application. Corporates do not access the TSU directly, only via the bank. There is no restriction on banks who can join the TSU or corporate customers who can avail of TSU/BPO-related services from their subscriber banks. The TSU supports transactions from any type of end-customers. Whilst the TSU is a bank-to-bank messaging and matching system using ISO 20022 standards, corporates can exchange related flows using a variety of channels (including SWIFT, web, ftp, …) and any format (ISO, ANSI, proprietary, paper, …)

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H8 Who does the reconciliation task in the TSU offering - SWIFT or the banks?

The TSU is a matching application that sits on the SWIFT network. Data is input by the participating banks and matched. The TSU then generates back reports to the banks either confirming the match or highlighting mismatches. Where required, the banks have the option of accepting or rejecting such mismatches.

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H9 What is coming up for TSU such as a Release 3 or extending the messaging service allowing the banks to pick up data directly from the corporations as today banks have to get the corporate data and translate it to TSU and back?

There are no immediate plans for a Release 3. However, we will consider upgrades to the TSU on the basis of customer requirements. Such ideas are always welcome. Work is currently in progress on the development of guidelines that will enable corporates to use TSU messaging standards in support of their corporate to bank communications. It is envisaged that the messages themselves might eventually be supported in corporate ERP systems such as SAP & Oracle and exchanged via alternative channels including bank proprietary systems or corporate access via SWIFT (SCORE).

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H10 What is the difference between BPO and TSU? The BPO may be regarded as a financial instrument (similar to a letter of credit) which can be established between banks as a means of mitigating risk, providing payment assurance and potentially to be used as collateral for financing. To make use of a BPO today banks must subscribe to a matching application managed by SWIFT. This is the TSU. The BPO forms part of a TSU baseline. The baseline specifies the data that has to be matched before the BPO becomes enforceable. The data is then matched by the TSU matching engine.

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q&a document on bank payment obligation and trade services utility

Economy & Finance