This document provides an agenda and overview for an ICC briefing on supply chain finance and the Uniform Rules for Bank Payment Obligation (UR BPO). The briefing will update trade bankers on the progress of the UR BPO rules, share next steps ahead of their formal adoption in April 2013, and encourage industry participation. The agenda includes introductions from banking commission representatives, an explanation of the new UR BPO, the ICC BPO project timeline and deliverables, accounting and capital treatment considerations, the corporate need for new open account trade rules, and a BPO case study from BP Chemicals. The ICC Banking Commission is a leading global rulemaking body for the banking industry focused on trade finance rules and guidelines.

1. ICC briefing on
supply chain finance
and UR BPO
Sibos Osaka
29 October 2012
1

2. Welcome!
• To update the Trade bankers on the progress on
UR BPO rules
• To share our next steps in view of formal
adoption of UR BPO rules in April 2013
• To suggest your joining this industry innovation
and increase corporate awareness
2

3. Speakers
• Kah Chye Tan, Global Head of Trade and Working
Capital, Barclays Corporate and Chair ICC Banking
Commission
• Dan Taylor, Managing Director, J.P.Morgan and Vice-
Chair ICC Banking Commission
• Daniel Schmand, Head of Cash Management and Trade
Finance EMEA, Deutsche Bank and Vice-Chair ICC
Banking Commission
• David Vermylen, Global Credit Manager Chemicals, BP
3

4. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
4

5. Cooperation Sibos Toronto
Both the ICC and SWIFT believe that by
working together and leveraging their
respective positions across the trade finance
community, the BPO will have an important
role to play in supporting the development of
international trade in the 21st century in
Kah-Chye Gottfried
addressing cost pressures in the face of
TAN LEIBBRANDT
increased automation and changes in the
Chair
ICC Banking CEO regulatory environment.
Commission SWIFT
5

6. Roles of ICC and SWIFT
To help banks provide The ICC Banking Commission
innovative trade and supply is a leading global rule-making
chain services that enable their body for the banking industry,
corporate customers to: producing universally accepted
– reduce risk rules and guidelines for
– enhance process international banking practice,
efficiency notably letters of credit,
demand guarantees and bank-
– improve liquidity to-bank reimbursement.
management.
Over 500 members in 85
More than 9,000 financial countries.
institutions in 209 countries.
6

7. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
7

8. The current instruments
Contract Contract
Documents
Buyer Seller Buyer Seller
Documents
Application
Documents
Letter of Open
Advice
Credit Account
Continuous
Documents shift
Issuance
LC Issuing LC Advising Buyer’s Seller’s
Bank Bank Bank Bank
Payment Payment
Bank risk / financing services Bank services limited to
based on paper document payment processing.
processing
If any risk, Credit Insurance or
Payment Guarantee is added
8

9. The opportunity for banks
Contract Contract
Documents Documents
Buyer Seller Buyer Seller
Bank Open
Data
Data
Payment Account
Obligation
Bank-assisted
open account
Data
Obligor Recipient Buyer’s Seller’s
Bank Bank Bank Bank
Payment Payment
Bank risk / financing services Bank services limited to
based on electronic trade data payment processing
The BPO enables bank-assisted Open Account trade
9

10. BPO is an alternative instrument
BPO is a new
payment term in the
ICC Int’l Sales Model Purchase Order
Contract Established Transport docs
Data/Paper
B2B Certificates
Invoices
practices
LC BPO
Buyer Seller
Transaction
data facilitating
Data
the provision of
Irrevocable and conditional risk & financing
inter-bank payment services
obligation (BPO)
Buyers'
ICC Seller's
Bank SWIFT Bank
An industry-wide messaging and A legally binding rulebook owned
matching platform that implements by the ICC and based on
10
the BPO in a multi-bank way ISO 20022 standards

11. The Bank Payment Obligation
A BPO is an irrevocable undertaking
given by a bank to another bank that
payment will be made on a specified
date after successful electronic matching
of data according to an industry-wide set
of rules.
Therefore, a BPO offers:
• An assurance of payment
• Risk mitigation for all parties
• Possible use as collateral for finance
An alternative instrument for trade settlement
11

12. Industry standards
• Trade Finance instruments
(UCP600, URDG758, URC 522, URBPO, …)
• MT standards
(for L/Cs, Demand Guarantees, Collections)
• ISO 20022 standards (for BPO)
• ISO 9362 Business Identifier Code (BIC)
• ISO Country codes, Currency codes, …
Industry standards are industry-owned and technology-neutral.
They coherently address legal and operational aspects.
12

13. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
13

14. Organisational structure
Group
BPO Working Group Activities
Co-chairs:
ICC and SWIFT Deliverables
Legal Drafting Education Commercialisation
Education Group Commercialisation
Drafting Group
Co-chairs: Group
Chair:
JPM and Vale Coordination:
ICC
SWIFT
Consultative Group Bank and
UR BPO Corporate case Bank-to-bank
rules Co-chairs: tests
CITI & FirstRand studies
Collaterals and Corporate on-
Reviews of Draft
Training boarding
UR BPO rules
Accounting and
Regulatory Consultancy
Treatment
14

15. ICC UR BPO Rules Timeline
DATE MILESTONE
March 2012 First review by ICC BPO Consulting Group
End March 2012 Presentation to ICC Banking Commission in Doha
May 2012 Second review by ICC BPO Consulting Group
May 2012 Drafting Group review comments from Consulting Group
May 2012 Send draft version to National Committees
August 2012 Review of comments from ICC National Committees
September 2012 Drafting Group to issue revised version
November 2012 Full presentation of ICC UR BPO Rules to ICC Banking Commission
December 2012 Review of additional comments from ICC National Committees
January 2013 Drafting Group distribute proposed final version of ICC UR BPO
Rules to National Committees
April 2013 Targeted approval at ICC Banking Commission
15

16. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
16

17. BPO Accounting Treatment
Party Transaction flow Liability Accounting
Confirming obligor role Contingent • Off Balance sheet
(All) Obligor Bank(s)
• Unfunded
In case of “silent Contingent • Off Balance Sheet
Recipient Bank confirmation” • Unfunded
• Obligor Bank Payment at sight after End of liability End of liability
• Recipient Bank Dataset Match Report
(in case of “silent
confirmation”)
• Obligor Bank Deferred Payment Direct • On Balance Sheet
• Recipient Bank Undertaking after • Unfunded
(in case of “silent Dataset Match Report
confirmation”)
• Obligor Bank Discount of Deferred Direct • On Balance Sheet
• Recipient Bank Payment Undertaking • Funded
(in case of “silent
confirmation”)
17

18. BPO Capital Treatment
• Many arguments in favour of similar treatment as
Commercial Letters of Credit
– Contingent, self-liquidating instruments
– Low losses (see ICC Trade Finance Default Register)
– A BPO should not be treated as a (performance related) Guarantee or
Stand-By Letter of Credit as a Guarantee is not a payment instrument
and BPO is a self-liquidating payment instrument
– A BPO should not be treated as a lending instrument as BPO is
contingent and (initially) unfunded
– Capital treatment similar for the Obligor Bank(s) and the Recipient Bank
(in case of “silent confirmation”)
18

19. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
19

20. Key benefits for the seller
Cash flow Supply Chain
Optimization Finance
Get paid on time Pre-/post shipment finance
Improve DSO and DIO Alternative to credit insurance
Mitigate payment default risk of OA Extension of reverse factoring
Improve liquidity forecasts
Improve discrepancy management
Reduce processing effort
Syndicate payment risk
20

21. Key benefits for the buyer
Cash flow optimization Supply Chain
Finance
Control payment time execution
Optimize use of credit lines
Pay key suppliers on time Extend payment terms (DPO)
Reduce administrative costs Negotiate commercial terms
Reduce investigations & disputes Reduce supplier default risk
Outsource payables
Processing
21

22. Easier access to risk / financing services
Tomorrow's data-driven risk mitigation and Today's data-driven invoice-based
financing services using the Purchase Order processing and financing services
Ordering of Production Shipment of Issuance of Payment & cash
goods of goods goods the invoice management
Purchase Transport Approved Payment
Certificates Invoice
Order Documents Invoice Initiation
Pre-shipment Post-shipment E-invoicing Approved
Payment
Payables
finance finance Factoring Financing
processing
Payment Timely
assurance Payment
New “e” services Current “e” services
22

23. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
23

24. BP Petrochemicals
• 2010 Revenues of USD 14
billion
• Revenue created for approx.
50% in Asia
• Trade account receivables of
EUR 1.4 billion (consolidated
receivables only)
• More than 600 clients worldwide
24

25. Key challenges
• Trade account receivables of EUR 1.4 billion (consolidated receivables only)
• Competitive commodities market requires a secure and cheaper alternative to
L/Cs
• About 50% of exposure on secured terms – typically interacting with around
50 banks
• High processing and confirming costs (0,8% of transaction value in average)
• LCs process limits commercial possibilities and reduces the competitiveness
of the offering
• LCs administration weakens compliance under certain conditions
• Reduced need for specialized LC training and specialized LC vetting
personnel
25

26. Long, costly and cumbersome doc. credit process
Re-route ships in
… or risk due …..or storage at
case of refusal of Delayed delivery
to a waiver port of destination
documents
Physical Supply
Chain
Purchase
Production Shipment Delivery
Order
PO BOL Invoice
Financial Supply
Chain
L/C issuance and
L/C issuance and Documents presentation and
Payment
acceptance
acceptance compliance verification
Documentation standards require
buyer to send L/C much earlier than Buyer cannot free its
the anticipated shipment date credit limits
Trade Post-Trade Pre-settlement Settlement
T T+1 T+10 S > T+20
26

27. BPO based on transport & invoice data
Delivery Carriers 4 Shipment
of goods Documents
sent directly
to the client
Use minimum
fields
1 Purchase order
8 Shipping documents (BOL) immediately
9 Invoice and certificates (authenticated and legalized)
Buyer Seller
Request BPO Inform of BPO
3
2 based on PO establishment
Trade
BPO is
Established
Services
baseline
Utility
due
Transport and BPO (TSU) BPO 5 Transport and
6
invoice data Obligor Recipient invoice data
(match report) Bank Bank
Advise payment is
10 Transfer funds at maturity 7 due on agreed date
27
27

28. BPO establishment and obligation
1 Buyer and seller agree on the BPO terms and the Buyer sends a purchase order to the seller
establishment
Buyer provides the minimum data from the PO and the BPO conditions to the Obligor bank
Baseline
2
3 Seller confirms the data from the PO and the BPO conditions to the Recipient bank
If the submitted data matches on the TSU, the “baseline” is established. Buyer and Seller receive the
matching report from their banks
BPO is irrevocable but conditional (subject to the electronic matching of agreed datasets)
4 Seller ships the goods to the port of destination
Matching
5 Seller provides the shipment and invoice data to its bank, which submits it to TSU for matching
6 Buyer receives a match report from its bank and is invited to accept mismatches, if any
7
Seller’s bank informs of the successful dataset match to the Seller
BPO becomes operative and due according to the agreed payment terms
8 Seller sends the bill of lading immediately by courier to the Buyer (eventually with a copy to the Buyer)
Settlement
Seller sends the invoice and required certificates (authenticated and legalized as required) to the buyer so
9 that he can receive the goods
On the due date, the Obligor bank debits the proceeds from Buyer’s account and remits the funds to the
10 Recipient bank. The Recipient bank credits the seller’s account
28

29. Benefits
• Get paid on time and avoid judicial proceeding
• Easier access to banks to secure transactions
Risk mitigation • Easy to exercise tool for liquidity
• Possibility to spread the risk with multiple obligors
• Free up banking lines
• Leaner operations and improve speed of handling
Operational • Reduce the risk of discrepancies, limit to relevant trade information only
efficiency • Quicker resolution of deviations (amendments)
• Remove costs due to confirmation, vetting and presentation
• Reduce complexity – removal of paper trail
Enhance • Reduce cost for customers due to vetting and presentation
competitiveness • Quicker assurance for buyers in terms of security of supply
• Improve customer offer by allowing for flexible options
29

30. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
30

31. ICC Banking Commission
The leading and trusted authority
for banking and trade finance
• Global standard setter and policy forum
• Commercially oriented value proposition
• Think tank for research and intelligence

32. 5 Major Initiatives Undertaken
1. Human capital
• ICC, National Committees, Banking Commission
• Banking: Advisory Board, Executive Committee, Secretariat
• Roles and responsibilities
2. New products
• Rule-drafting: Forfaiting, supply chain financing, ISBP
• Market intelligence: ICC Surveys, ICC Register, etc.
3. Regulatory policy engagement
• Leading voice for Basel III, KYC, sanctions, etc.
• Basel, WTO, IMF, UN, MDBs, ECAs…
4. New sources of revenue and outreach
• ICC Banking Academy
• Regional Banking Commissions
5. Strengthen the value proposition

33. ICC BC Business Plan 2012-2015
The ICC Banking Commission has structured its strategy around
the following service lines:
 AREA 1: Traditional Trade Services
 AREA 2: Open Account & Supply Chain Financing
 AREA 3: Global Regulatory
 AREA 4: Legal & Compliance
 AREA 5: Special projects involving multilaterals, export
credit agencies and insurance, focused on emerging
markets

34. Agenda
• Introduction
• New Uniform Rules for Bank Payment Obligation
• The ICC BPO Project Deliverables and Timeline
• The accounting and capital treatment of BPO
• The corporate need for new rules for open account trade
• A BPO Corporate Case study: BP Chemicals - Octal
• The ICC Banking Commission team and projects
• Conclusion
34

35. Next steps for you
• Join the BPO Community (44 banks today)
• Test BPO with your correspondent banks (TSU)
• Engage with corporate clients
• Develop your business case and readiness plan
Get ready now as ICC will
launch UR BPO in Q2 2013 35

36. 4 banks are live on BPO
Banks with live transactions + 1 corporate case study
Live Banks Region Intra / Inter- Locations of Corporate case
bank live corporate study
transations supply chains
Bank of China APAC Intra in China CN Ito Yokado’s Chinese
Inter suppliers
Bank of Tokyo APAC Intra JP, HK, CN, TW Ito Yokado
Mitsubishi UFJ Inter
Korea Exchange APAC Inter KR Automotive industry
Bank (in development)
Standard EMEA Intra BE, OM BP Chemicals
Chartered Bank Octal
36

37. 12 banks are ready for live use
Banks ready to go live but with no live BPO transactions yet
• Bank al Etihad (Jordan)
• Barclays
• Byblos Bank (Lebanon)
• Commercial Bank of Dubai
A total of 44 banking
• Commerzbank groups have
• Deutsche Bank confirmed their
• Hua Nan Bank (Taiwan) adoption of the BPO
• J.P. Morgan
• Kasikornbank (Thailand)
• Siam Commercial Bank (Thailand)
• Standard Bank of South Africa
• Sumitomo Mitsui Banking Corporation (SMBC)
37

38. This week’s BPO sessions
Main Conference
Open Account Trade and the Bank Payment Obligation
Wednesday 31 October 14:00 - 15:00 in Conference room 1
SWIFT@Sibos
BPO by Bank of Tokyo Mitsubishi UFJ
Tuesday 30 October 15:00 - 15:45 in SWIFT auditorium
BPO by Standard Chartered Bank and BP Chemicals
Wednesday 31 October 10:45 - 11:45 in Hyatt Room 1
38