Home / News & Speeches / ICC rules on forfaiting now in effect

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 came into effect on 1 January

Forfaiting came into effect on 1 January

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.

Learn more about the ICC Banking Commission.

Get your copy of the new Uniform Rules for Forfaiting.

For further information, please contact

  • ICC PUBLICATIONS
  • ICC Bookstore