A Bank provides different facilities to Corporate customers. The facilities offered are issuance of Letters of Credit, Bank Guarantee, Collection of Bills etc. For rendering these facilities the Bank collects commission. Oracle FLEXCUBE supports issuance of Letters of Credit, Collection of Bills etc.
Lines of business like trade finance and foreign exchange have a host of fees associated with them. For instance when a bank opens a letter of credit, it charges a commission which could be a percentage of the LC value for a period. Similarly, when a bank sends its exporter’s bill for collection it recovers a commission for processing the bill. It also recovers a collection charge when the bill amount is received from the importer’s bank (after it is paid by the importer).
In foreign exchange transactions, a bank normally recovers commission for entering into a forward contract against a bill transaction. A bank also charges a premium for entering into a derivative transaction with a corporate customer.
To process a contract, your bank may collect any or all of the following commissions:
Commissions on a contract can be:
Thus, there are different ways of collecting commission from your customers. Every time a contract is processed, you need not specify when and how the commission should be collected. Instead, you can define the attributes of a specific commission as a Commission Rule. A rule identifies the basic nature of the commission component.
After the creation of a Commission Rule, proceed to create a Commission Class. The Commission Class is then attached to a Product.
More than one type of commission can be applied on an event, in the lifecycle of a product.
In Oracle FLEXCUBE, you process commissions as follows:
When you process a contract, the commission details defined for the product in which the contract has been entered would be applied automatically on the contract. In other words, the commission rule is ‘defaulted’ from the product under which the contract is processed. However, if required, you can change some of the attributes for a commission, for a specific contract.
To process commission in Oracle FLEXCUBE, perform the following the in order given below:
This chapter contains the following sections:
This section contains the following topics:
A commission rule uniquely identifies the basic nature of a commission component. Each commission rule is defined by an eight-character code, called a Rule ID. Attributes are defined for this Rule ID, which is then linked to a product. When a contract is processed, the commission attributes defined for the Rule ID linked to the product will be applied on the contract.
You can define any number of rules for the commission that you would like to collect from your customers.
A commission rule is created in the same way that any Interest, Commission, Charge and Fee (ICCF) rule is created, as follows:
To recall, at the head office of your branch, you can create appropriate ICCF rules and make the rules available to the required branches.
In the ‘ICCF Rule Availability Maintenance’ screen, you can maintain ICCF rules, which you can make available to desired branches. You can do this by maintaining a list of branches for which the use of the rule is allowed, or disallowed. You can invoke the ‘ICCF Rule Availability Maintenance’ screen by typing ‘CFDICCFR’ in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.
In this screen, you must specify the following information:
Rule Identification and Description
You must specify a unique identification for the ICCF rule you are creating. If you are creating a commission rule, specify a unique identification for the commission rule. This is the identification that will be used as to identify for the rule, in all subsequent references to it. You must also specify a unique description for the rule.
You must select the Rule ID to have all the bank branches listed in the Branch field list of options.
Note
After the rule has been created in the ‘ICCF Rule Branch Availability’ screen, the attributes for the rule must be defined in the ‘ICCF Rule Maintenance’ screen.
Branch Restrictions
You can maintain a list of allowed branches (that is, the rule will be available for use in the allowed list of branches) or disallowed branches (the rule will not be available for use in the branches in the disallowed list).
To recall, the attributes for the rule are defined, in the ‘ICCF Rule Maintenance’ screen. Maintaining the attributes in this screen, for a branch, is subject to whether maintenance of ICCF rules is allowed for the branch, and also whether the rule for which attributes are being defined, is allowed for the branch.
For details about the Common Branch Restrictions, refer the Security Management System user manual.
To recall, after a commission rule has been created in the ‘ICCF Rule Availability Maintenance’ screen, the attributes for the rule must be defined in the ‘ICCF Rule Maintenance’ screen. You can invoke this screen by typing ‘CFDRUMNE’ in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.
Building of commission rules is a part of the ICCF (Interest, Commissions, Charges and Fees) services that are used by all modules of Oracle FLEXCUBE.
The following are the features of the ICCF rule details screen.
Rule Type
The Rule Type identifies the type of ICCF component you are defining. To define a commission rule, choose ‘Commission’ from the list.
Rule ID and Description
A Commission Rule identifies the basic nature of a commission component. Each Commission Rule is defined by an alphanumeric code called the Rule ID. Attributes are defined for this Rule ID, which is then linked to a product. When a contract is processed, the commission attributes defined for the Rule ID linked to the product will be applied on the contract. However, during contract processing you can change some of the defaulted attributes.
To recall, the Rule ID for a commission rule is specified in the ICCF Rule Branch Availability maintenance. Accordingly, in the Rule ID field in this screen, you must select the ID of the commission rule that you wish to build by maintaining the attributes.
The option list in the Rule ID field is populated based on the following conditions:
If no Common Branch Restrictions have been maintained, and the restriction type ICCFRULE has not been maintained in the SMS Branch Restriction Type maintenance, the option list in the Rule ID field only displays those rules that are available for users in the current branch, according to the ICCF Rule Branch Availability maintenance.
The conditions for the application of a commission rule can be defined in the ‘ICCF Rule Maintenance’ screen.
The rule can be applied to any contract, irrespective of the currency of the contract, the customer and the branch involved. This is referred to as a general commission rule. You must define a general commission rule that would be applicable for any contracts in any currencies, involving any customers, customer groups or branches, before you define rules applicable to specific customers and contracts in specific currencies and in specific branches. The general rule can only be maintained at the head office branch.
Thus, the most general application of the condition can be that it is applicable to contracts in any currency and involving any customer.
After defining the general commission rule, you can then proceed to define rules that can be applied to contracts involving the following specific combinations:
Note
As mentioned earlier, the rules applicable for combinations involving all branches (the ALL option in the Branch Code field) can be maintained only from the head office branch.
Once a Commission Rule has been defined, you should link it to a product. Thus, the definition of Commission Rules should precede the definition of the product.
Transaction Currency
If you wish to define the attributes for all currencies, you can select the ALL option in the Currency Code field to indicate this. If you are maintaining the attributes for the selected ICCF rule in specific currency other than the ‘ALL’, select the Transaction Currency on which the rule mapping maintenance is to be made applicable.
You can specify booking currency as contract currency.
Customer Group
Select the customer group on which the rule mapping maintenance is to be made applicable.
Note
You can create a generalized charge rule mapping record by selecting the ALL option in the Customer Group field. This specification is defaulted to the Customer and Customer Account fields. You will not be allowed to change the specification.
Customer
Identify the customer ID (CIF) of the customer for whom you are maintaining the rule mapping.
Branch Code
If you are maintaining the attributes for the selected ICCF rule from the head office branch, you can select the branch for which the attributes are being defined. If you wish to define the attributes for all branches, you can select the ALL option in the Branch Code field to indicate this.
If you are maintaining the attributes for the selected ICCF rule from a branch other than the head office, you can only select those branches that are found in the allowed list of branches for:
In other words, the option list in the Branch Code field would display only those branches that are allowed both for the rule and the current branch.
Rate type
The commission that is applicable for a contract can be expressed either as a flat amount or a percentage of the Basis Amount. This in fact, forms the basic attribute of a commission rule.
If you express the commission as a flat amount, you should also specify the currency in which the amount is expressed. The specific rates or amounts applicable as per the rule being defined can be specified subsequently. These rates or amounts can be changed while processing a contract.
Fixed Rate
The Fixed Rate will be applied on the Basis Amount of the contract. The basis amount is defined while linking the commission rule to the product.
The Maximum Commission Amount for a commission refers to the maximum amount that can be applied on a contract involving this Rule ID. If the commission calculated for a contract using this Rule ID exceeds this amount, the Maximum Commission Amount that you specify, will be applied instead of the amount calculated using the fixed rate. Thus, you can fix the maximum amount that can be charged on a contract that your bank processes.
You can indicate the Maximum and Minimum Commission Amounts only if the Rate Type is ‘Fixed Rate’. You cannot indicate these in case of a ‘Flat’ Rate.
The Minimum Commission Amount for a commission refers to the Minimum amount that can be applied on a contract involving this Rule ID. If the commission calculated for a contract using a Commission Rule falls below this amount, the Minimum Commission Amount specified will be applied instead of the amount calculated using the fixed rate. Thus, you can fix the minimum amount that can be charged on a contract processes by your bank.
Minimum and Maximum rates
If you have chosen not to maintain the minimum and maximum amounts, you can specify the minimum and maximum rates for commission calculations. If the brokerage calculated using this Rule ID exceeds the amount calculated using the maximum rate specified here, the maximum rate amount will be applied as commission. Similarly, if the commission amount falls below the amount calculated using the minimum rate, the minimum rate amount will be considered as commission.
Note
If you have specified a flat amount as the Rule Type, then you need not specify the minimum and maximum amount/rate limits.
Defining an amount structure for commission application
You can define the commission to be applied on the Basis Amount of a contract with a specific tier or slab structure.
Rounding Period
The Rounding Period indicates the period up to which, you would like to round off commission calculation. Fractional periods, during the tenor of a contract are rounded up to the nearest whole period based on the Rounding Period that you maintain. The Good Until Date is calculated using the tenor of the contract and the Rounding Period. The good until date is the date (after rounding) up to which the commission will be applied.
Specification of Rate Period and Rounding Period is mandatory, for a tenor based commission. When the Rounding Period is Zero, the tenor is in days. When the rounding period is not zero, tenor is in months.
Tenor Basis
You should specify whether the Commission Rule you are defining is to be applied based on the tenor of the contract. The tenor of the contract is calculated as the difference between the Maturity Date and the Value Date of the contract. After the tenor is calculated, brokerage will be computed based on the tenor slabs defined in the ‘Tenor Based Rates’ section of the screen.
Tiered Amount
By choosing the Tiered Amount option, you can indicate if the Basis Amount on which commission is calculated for the rule is a tier or a slab. Check the ‘Tiered Amount’ box if the Basis Amount structure is a tier. If a slab, do not choose this option.
You can indicate that commission should be calculated on a tier basis only in the case of non-periodic commissions.
Floor CCF Amount
For a tier structure, you can specify the Floor CCF Amount. This is specific to commission rule. Floor CCF Amount indicates the minimum amount for the slab. This is used if the computation basis is 'Tiered'.
Floor CCF Amount is the commission amount to be considered for the previous slab limit. This amount is used along with Floor Basis Amount to arrive at the commission for an amount falling in the current slab. This amount need not be the same as the amount calculated using the Basis Amount and rate for the previous slab.
As per Contract Currency
This specifies the calculation basis for the commission based on the Contract Currency or Rule Currency. Check this box if you wish to calculate the commission based on the contract currency.
Tiered Tenor
You can indicate that commission is to be calculated on the basis of a tiered tenor structure, by choosing the Tiered Tenor option. If the rule should calculate commission on the basis of a slab structure, leave the check box adjacent to Tiered Tenor unchecked.
You can choose to indicate the Rate Code and whether the rate is Mid, Buy or Sell only when the basis amount currency and the rate currency is different from the contract currency. The rate code is used to arrive at the exchange rate if the rate currency is different from the contract currency. The system arrives at the exchange rate from the parameters specified for the currency pair in the Currency Pair Definition table.
Refer to the chapter on ‘Currency Maintenance’ in the ‘Core Services’ User Manual for more information on parameters of currency pairs.
Cascade Amount and Basis Amount
You can opt to ‘cascade’ commission on contracts whose amount has been amended. Commission calculation can either be solely for the amended Basis Amount, or the entire Basis Amount of the contract (the amended Basis Amount plus the original Basis Amount of the contract). Choosing to calculate commission only for the amended Basis Amount of the contract is referred to as ‘Cascading’.
Commission that you collect for the amended amount can be calculated on the basis of a tier or a slab structure.
Charge Currency
The charge currency is the currency, which associates with the commission which is calculated or the flat commission amount.
When building a commission rule, if the Rate Type is a Flat Amount, you have to indicate the currency of the commission. The commission when applied on a transaction will be collected in this currency. The input to this field can be any currency that is maintained as part of Currency Definition in Oracle FLEXCUBE.
Booking Currency will be Charge currency for Interest type. Charge currency should be null when booking currency is Contract currency. This is applicable for commission rule type also.
Rate Period
The rate period is used to define the period for which, the fixed commission rate is applicable. Instead of expressing the commission rate on a per annum basis, you should specify it on a rate period basis, which is expressed in months.
If the commission is periodic, then the rate period is used to define the period for which the fixed commission rate is applicable as well as the commission liquidation frequency.
Bracket Amount
You can create a Charge Rule that would calculate charges on the basis of an amount structure. In this table you define the different attributes of amount structure based on which the charges would be calculated.
Basis Amount To
You should specify the upper limit of the slab or tier to which a particular rate or amount should be applied as commission.
Defining the commission as a flat amount involves the specification of the following:
Flat Commission Amount
If the commission is expressed in the form of a flat amount, you should specify the amount to be collected as commission.
Flat Amount Currency
If the Rate Type is expressed as a Flat Amount, you should also specify the currency in which the amount has to be applied. If it is not the same as the currency of the account from which the commission is paid, the amount will be converted at the rate specified for the product. This rate, as well as the amount defaulted, can be changed while processing the contract involving the rule. You can specify the currency of the flat amount in the Charge Currency (Ccy) field.
Oracle FLEXCUBE allows you to compute tenor-based commission on a product. You can specify the details required to calculate tenor-based commission in the ICCF Rule Details screen.
Minimum Commission Period
If you indicate the Rate Type, of a commission rule as Fixed Rate, you should also specify the Minimum Commission Period for the rule. The commission defined for the minimum commission period will be applied on contracts with tenors less than the minimum period. If the tenor of a contract is greater than the minimum commission period, commission will be calculated using the amount and tier structures that you build in this screen.
Calculating Commission using a Tenor-Based Tier/Slab Structure
You can define a tenor-based tier or slab structure for every amount slab that you have built. The following example illustrates how commission is calculated using a tenor-based structure.
Your Requirement
You are building a Commission Rule (Rule ID: Tenor Tier) that you would like to associate with a product. You would like to compute commission for the contracts maintained under the product on the following tiered tenor basis:
Basis Amount (Slab) |
Tenor One (0-3 months) |
Tenor Two (4-6 months) |
Tenor Three (7-999 months) |
0 - 100,000 |
0.1% |
0.15% |
0.17% |
100,001 - 1,000,000 |
0.2% |
0.25% |
0.3% |
1,000,001 - 99,000,000 |
0.5% |
0.75% |
1% |
Note
The commission rates are specified in terms of a per month basis (specified in the Rate Period field as 1.)
Building the Commission Rule
The Rule you are building calculates commission on the basis of a rate. In the Rate Type field, select the ‘Fixed Rate’ option.
In Min. Comm. Period, specify the minimum commission period as, say, 1.
Since you would like to calculate commission on the basis of a tiered tenor structure, click on the check box adjacent to Tiered Tenor.
In Basis Amount To, enter the upper limits of the different slabs. That is, enter 100,000; 1,000,000; and 99,000,000.
In the Tenor Based Rates field, you can build the tiered tenors for each amount slab, in the following manner:
For the first amount slab, enter the tenor-based tier structure in the Tenor Based Rates fields. In this case, choose the first amount slab, 100,000 in the Basis Amount field.
For the first amount slab, enter the lower and upper limits of the tenor-based tiers in the ‘Tenor From’ and ‘Tenor To’ columns respectively. In this case, for the first tenor-based tier, enter the 0 as Tenor From, and 3 as Tenor To.
For each tenor-based tier, provide the corresponding rate in the Fixed Rate column. For the tenor 0-3 months, enter 0.1 in the Fixed Rate column.
In a similar manner, build the tenor structure for the other amount slabs.
Note
Only some fields are mentioned in this example. When building a commission rule, you have to specify other details such as the Commission Currency, the Basis Amount Currency, etc.
When the rule is applied on a contract
Assume that this rule (Tenor Tier) is linked to a product. Commission for the contracts maintained under this product, will be calculated using the rule ‘Tenor Tier’. The commission for the following contract is calculated using this rule:
Basis Amount = 800,000
Tenor = 8 months
The Basis Amount falls in the second slab (greater than 100,000, upto 1,000,000). The tiered tenors, corresponding to the second amount slab, will be used to arrive at the commission amount.
The commission amount will be calculated in the following manner:
Commission Amount for the period 0 to 3 months: 800,000 * 3 * 0.2% = 4800
Commission Amount for the period 4 to 6 months: 800,000 * 3 * 0.25% = 6000
Commission Amount for the period 7 to 8 months: 800,000 * 2 * 0.3 = 4800
Total commission calculated for the contract using Rule Tenor Tier = 15600
Note
In the Contract ICCF screen, the rate applied on the last tier (in the example, 0.3%) will be displayed. You cannot modify the Rate, the Collection Method and the Rounding Period during contract input.
ICCF Rules that you maintain are resolved in the following sequence:
Rule |
Branch |
Customer Category |
Customer |
Currency |
Specific |
Specific |
Specific |
Specific |
Specific |
Specific |
Specific |
Specific |
Specific |
ALL |
Specific |
Specific |
Specific |
ALL |
Specific |
Specific |
Specific |
ALL |
ALL |
Specific |
Specific |
Specific |
Specific |
ALL |
ALL |
Specific |
Specific |
ALL |
ALL |
ALL |
Specific |
ALL |
Specific |
Specific |
Specific |
Specific |
ALL |
Specific |
Specific |
ALL |
Specific |
ALL |
Specific |
ALL |
Specific |
Specific |
ALL |
ALL |
ALL |
Specific |
Specific |
ALL |
Specific |
ALL |
ALL |
Specific |
ALL |
ALL |
ALL |
ALL |
This section contains the following topics:
After defining the attributes of a commission by allotting it a Rule ID and specifying the application conditions, you can link it to a product. When a contract is processed involving the product, the commission attributes defined for the product will be applied. Some of these attributes can be changed while processing the contract. If an attribute can be changed, it will be mentioned in the on-line help for the field.
To invoke the ‘ICCF Details’ screen, you need to click ‘Commission’ button from the ‘Product Definition’ screen.
Through this screen you can make a commission rule that you have defined applicable to a product. Enter the following details in the ICCF screen.
A commission is applicable for a specific event in the lifecycle of a contract involving the product. You can have different types of commissions for issue and amendment of a contract. You can also have more than one commission applicable for a single event of the contract. While processing a contract involving the product, all these rules can be retained or one or more can be waived.
Note
The commission rules you define for a product must either be periodic or non-periodic in nature. You cannot have a mix of periodic and non-periodic commission rules linked to a product.
For a commission component, you should specify the event during, which the commission component whose attributes are being defined, has to be applied.
To specify the basis for the application of the commission, you need to specify the following attributes:
Amount Type
If the rate type specified for the commission component is a fixed rate, specify the basis amount on which the commission should be applied.
Category
If the rate type specified for the commission component is fixed, specify the type of Basis Amount that has to be considered for commission calculation.
The category can be one of the following:
Accruals
The commission on a contract can be accrued over a period. You can accrue some or all of the commissions defined. The frequency of the accruals has to be specified, as part of product preferences. All the components that have to be accrued will thus be accrued at the same frequency.
The accruals will be carried out at the specified frequency, by the batch-processing program for the product, during End of Cycle processing.
Note
In case of periodic commission, accrual with monthly frequency happens on the month end; that is on the last working day of the month
The system accrues commission at the end of commission collection period
Whenever there is an auto CLIQ (Commission Liquidation) event, the system accrues commission (Catch-up accrual) for that particular day
For a Letters of Credit contract, in case of periodic commission, the system accrues commission till the end of the month on the last working day of the month if:
Currency
This is the currency in which commission will be applicable. The option list will display all the currencies available at your bank.
Calculation Basis
Here, you can specify the basis for calculating commission on the given currency. The options available are:
The above fields are not mandatory at the product level. If not specified, the system picks up the interest basis defined for the currency and uses that to calculate commission. These fields can be changed anytime at the product level because the existing contracts will use the old commission basis. During copy operation, all the commission calculation basis parameters existing for the product needs to be copied to new product.
Stop Application
The attributes defined for a product will be automatically applied to all new contracts involving the product. However, you have an option to stop the application of a commission on new contracts involving the product. This can be achieved by ticking the Stop Application button for the component in the ICCF Rule Details screen.
However, the existing contracts will continue to have the commission rule applied on them. If the rule is used as a periodic commission, you can stop its application for existing contracts, by specifying a Stop Date in the Contract ICCF screen.
At any time, you can revoke the commission rule and reapply it for new contracts by un-checking the Stop Application button.
The commission details defined for a product will be automatically applied on a contract involving the product. However, you can change certain attributes of a commission, for a specific contract.
Some products may need more information on commission processing, which are specific to the product. These inputs are entered in the Product Preferences screen.
Refer to the product module user manual for an explanation of product preferences.
Note
You will not be able to save ICCF commission details for an LC product of the type ‘Reimbursement’. The system will display an error message while saving the ICCF commission details.
For a product you can specify the method for computing the commission for the customer. The two options available to you are as follows:
LIFO
Select LIFO if the commission has to be computed using the LIFO method. Here the basis amount of commission components is reduced in the Last In First Out (LIFO) order, whenever the LC contract is availed or the outstanding amount of the LC is reduced.
FIFO
Select FIFO if you want to calculate your commission using the FIFO method. Here the basis amount of commission components is reduced in First In First Out (FIFO) order, whenever the LC contract is availed or the outstanding amount of the LC is reduced.
This section contains the following topics:
The commission details defined for a product will be automatically applied on a contract involving the product. These details can be viewed through the ‘Commission Details’ screen. You can also change certain attributes of a commission, for a specific contract.
From the Contract screen, click ‘Commission’ button for a display of the ‘Commission Details’ screen. The details of the commission applicable for the event you are processing will be shown. The following attributes can be changed for a commission component.
Use the set of arrow buttons to move between the next, previous that has been linked.
Contract Ref No
The contract reference number, of the contract you are processing, will be displayed on this screen. The details of this screen can be divided into two sections. The first contains and captures details of the commissions that are to be processed on the contract. The second contains details of the charges to be levied on the contract.
Event and Component
The commission component and the event for which the component is to be applied, along with their description, are defaulted from the product under which the contract is processed.
Based on the details you have specified for the rule and the product that a contract involves, the following details will be defaulted. Some of these attributes can be changed.
Calculation Method
The commission calculation method, i.e., whether it is collected on a periodic or non-periodic basis, is defaulted from the product.
Rate
If you have specified the commission as a rate, the following details will be defaulted. These default settings can be changed.
For a periodic commission, you can specify whether the rate should be applied from the current period or from the next period.
Start and End date
By default, the period for commission application will be between the Issue Date and the Good Until Date. However, you can change this period by specifying a Start Date and End Date for commission calculation.
Good Until Date (GUD)
The Good Until Date is calculated, based on the Expiry Date and the Rounding Period, for commission calculation. The GUD is the date (after rounding) up to which the commission will be applied.
Commission Calculation Basis
This will specify the calculation basis for the commission. This field is applicable only for commission components whose rounding rule = 0.The drop down list will have the following commission calculation values you can opt from:
The Calculation basis field will be defaulted from the product based on the commission currency. If the details are not present in the product, the interest method defined for the currency will be displayed. For commission components whose rounding period is non-zero and for flat calculation method, the calculation basis will be actual/actual and the field will be disabled. This field can be changed only for components whose rounding period is zero. The value of this field can be changed at the contract level during contract input. Subsequently this value cannot be changed during amendment or other events. The commission calculation basis field is a mandatory field at contract input though it is not mandatory at product level. During copy operation the commission calculation basis needs to be picked from the product. If it is not present, then the same would be picked from the currency definition. The commission calculation process will obtain the commission calculation basis from the contract commission details and accordingly pick up the number of days for commission calculation.
Payment type
The commission type specifies whether the commission should be collected in arrears or in advance.
Follow Rule
For a specific commission, you have the option to change certain details while processing a contract. If, after changing some details you decide to reapply the ones defaulted from the product, tick the Follow rule button. This button is basically an Undo action of the changes you made.
Waive
The application of a specific commission can be waived for a contract. This can be achieved by ticking the Waive button before the commission is collected. To waive all the commissions applicable for an event by checking against the Waive all field.
Details of a Flat Commission
If for the rule, you have specified that the commission component is to be collected as a flat amount, the following details will be defaulted: