New gTLD Advisory
Advisory number: R1-A01-0050
Publication date: 5 December 2012
Updated date: 10 June 2013
About this advisory: Based on evaluations performed to date, there are some areas that are generating a large number of clarifying questions. The intent of this advisory is to provide applicants with information to prepare in advance of receiving clarifying questions. We recommend that applicants take pro-active steps to address any relevant issues prior to receiving clarifying questions.
Disclaimer: ICANN issues this document to provide information that is intended to assist applicants with preparing in advance of receiving clarifying questions. It illustrates areas generating a large number of clarifying questions based on applications evaluated to date. It, in no way, represents a complete list of issues under which a clarifying question may be issued. This material is for information only and does not represent all requirements and criteria that the applicant must satisfy. ICANN is not providing legal, financial, business, or any other kind of advice. This material does not represent a modification to the Applicant Guidebook, or the terms and conditions of the new gTLD program. This material also does not represent a waiver of any ICANN policy, procedure or agreement.
Have questions regarding this material? Please contact New gTLD Customer Service at https://gtldapp.icann.org/vpn/index.html.
Relevant Applicant Guidebook reference
Question 50(b), fifth bullet under sub-section (i) and fourth bullet under sub-section (ii).
Relevant supplemental note reference
Note 1.6 of Q50 supplemental note.
10 June 2013 Update
During the Applicant Update Webinar on 5 June 2013, Christine Willett discussed the Continuing Operations Instrument. An excerpt from that discussion is below.
I'd now like to talk about one aspect of initial evaluation in particular. It's the Continuing Operations Instrument, or as many of us think about it, the Letters of Credit (LOC). As per the Applicant Guidebook, the intention and purpose of the Continuing Operations Instrument is to ensure that the applicant has the funds necessary to provide a continuity of service should any issues with registry arise. Specification 8 of the Registry Agreement requires the Continuing Operations Instrument. Most applicants have opted to use a Letter of Credit as that instrument. Question 50 of the application provides for the assessment of the Continuing Operations Instrument, and it's intended to assess the applicant's ability to meet the requirements of Specification 8. However, the scoring requirements for Question 50 are distinct and separate from the requirements of Specification 8. Specification 8 is very much a portion of the Registry Agreement, and it's a legal document, whereas the assessment and criteria in Question 50 are intended to assess the financial capability of the applicant.
A little more information, the Applicant Guidebook requires a number of business attributes about the COI or Letter of Credit. It has to be written for a specific dollar amount, or funding level. It must be issued by an A-rated bank or financial institution. If it covers multiple strings, it has to have the amount allocated for each of those strings. ICANN or its designee must be the beneficiary. The COIs have to be in place for five years as of the opening of the application window on January 2012. And, the COI/LOC's are to be unconditional. This information is all in the AGB. Again this is a shorthand, non-legal version of the criteria but I wanted to reiterate this, so onto the rest of our discussions on COI's.
We have published a number of applicant advisories about the Continuing Operations Instrument, which were intended to assist applicants in understanding the expectations for Question 50, and give them the information to maximize their opportunity for scoring on Question 50. There was an announcement in December 2011 prior to the application window opening about the bank rating and the amount/funding levels required for the COI. There was an additional advisory published in February of this year on beneficiary requirements, and an advisory on the conditions of conditionally language on the LOC which was published in December 2012, and updated in March of this year.
The intention of these advisories was to provide the applicants with as much as possible to submit LOCs or other instruments that scored the full potential of three points on Question 50. However, what has come to light in the Initial Evaluation process is that despite clearly a lot of good efforts by applicants to utilize the unconditional language examples that were provided in the advisories, there was some confusion and some inconsistent application and usage of that conditional language. Some applicants have been providing LOCs with some and not all of the conditions that make an acceptable "unconditional" Letter of Credit. Also, complicating this, as some of you are aware, is that there are some financial institutions that refuse to issue unconditional Letters of Credit. This is made more challenging because Initial Evaluation was not built or designed to facilitate extended exchanges and dialog about these issues between the evaluation panels, ICANN, the applicants and the banks. Based on this inconsistency of using this conditional language, we are choosing to focus the evaluation of Question 50 on financial aspects of the Continuing Operations Instrument and the final evaluation of COIs against Specification 8, including conditionality, for the contracting process. Our panels are assessing the financial capability of the applicants not the legal language. We are going to address legal language regarding conditionality at the point of contracting.
Why am I talking about this specific slide and what does it mean to you? First and foremost, I want to make clear there is no impact on any of the published IE outcomes to date. No outcome (passing Initial Evaluation or being eligible for Extended Evaluation) is affected by this focus on the business aspects and business criteria of the LOCs. Approximately 15% of the applications that have passed Initial Evaluation to date, so approximately 15% of the 600 published, will have their Initial Evaluation score for Question 50 updated from 1 point to 3 points. The IE outcome will still remain a pass. Due to the timing of the program and our desire to continue to meet our objectives of publishing results for 100 applications per week, we will not be updating the IE reports that have been published at this time. Our intention is to update the reports by the end of Initial Evaluation. This focus on the business criteria will have no impact on the applications that have been recommended for Extended Evaluation. This approach to the evaluation to Question 50 will be reflected in the IE results in the reports starting this Friday June 7th. I feel this focus is a very valid representation of the intention of the criteria in the AGB for Question 50.
4 March 2013 Update
Many applicants have contacted ICANN for assistance with determining language in the LOC that would not be considered a condition, and that would be an acceptable beneficiary statement. ICANN considers the following example language an acceptable beneficiary statement that is not a condition:
"ICANN is entitled to draw the funds under this Letter of Credit under Section 2.13, Section 4.5 or Specification 8 of the registry agreement for the [____] TLD between ICANN and [Registry Operator]."
The foregoing should not be interpreted as the only acceptable statement for LOCs, but only an example of statements that are not considered conditions.
Applicants who consider their LOCs to have met the requirements of the Applicant Guidebook need not perform any action. Applicants who wish to submit a change request to amend their LOCs should contact the Customer Service Center and follow the change request process posted at: http://newgtlds.icann.org/en/applicants/customer-service/change-requests.
Clarification of the unconditional withdrawal of fund requirement
The purpose of the continuing operations instrument (COI) is to ensure availability of funds needed to provide continuity of service to the registrants should an issue with the registry arise. ICANN's ability to exercise its rights under the COI are set forth in the new gTLD registry agreement (see Section 2.13, Section 4.5, Specification 8 and, for intergovernmental organizations and governmental entities only, Section 7.14(f)). As ICANN cannot envision all possible scenarios that could result in the need to draw on the COI under these provisions, the "unconditional withdrawal of funds" requirement must be met. In the event that the registry operator believes that ICANN has drawn on the COI in a manner that contravenes the registry agreement, registry operator will need to seek a remedy under the registry agreement. If the COI contains any provision that limits ICANN's or its designee's ability to draw on the COI at any time by delivering notice, a clarifying question will be issued.
The beneficiary statement in Q50 supplemental note provides one example under which the LOC may be drawn, but must not be the only condition for withdrawal of funds. If the LOC contains this beneficiary statement, it must also contain additional language that clearly states that failure of critical registry functions is one example under which the LOC may be drawn upon, AND that ICANN or its designee will be able to draw on the LOC by providing notice, without any further conditions. If the LOC only contains the above beneficiary statement and no additional language of unconditional withdrawal, a clarifying question will be issued.
Examples of conditions that do not meet the requirements of Q50
Below are some examples of provisions in the LOC that would be considered a condition for the withdrawal of funds. Note that this is not a comprehensive list, but rather just some examples. Any provision that limits ICANN or its designee's ability to draw on the funds at any time by providing notice to the issuer will be considered to not meet the requirements of Q50.
- ICANN or its designee must assert that the applicant has failed to comply with one or more of the critical registry functions under the registry agreement in order to draw on the funds.
- ICANN or its designee must assert that it has not received payments from the Applicant in order to draw on the funds.
- ICANN or its designee must assert that the applicant has defaulted on its commitment in order to draw on the funds.
- ICANN or its designee must assert that the applicant has failed to fulfill their contractual obligations in order to draw on the funds.
- ICANN or its designee must assert that the applicant has not funded the operations of the registry.
Examples of statements that are not considered conditions
- ICANN or its designee shall be unconditionally entitled to a release of funds (full or partial) thereunder upon delivery of written notice by ICANN or its designee.
- ICANN or its designee must provide a dated certification purportedly signed by an authorized representative of the beneficiary, followed by its designated title, stating the following, "we hereby certify that we are authorized to draw under said letter of credit."
- ICANN or its designee must provide a draft drawn at sight marked "Drawn under [ISSUING BANK] LOC.
- ICANN or its designee's demand for payment must be accompanied by a written declaration stating that:
- The declarants are two officers of the beneficiary, making the declaration on behalf of the beneficiary.
- The declarants have authority to make the declaration on behalf of the beneficiary.
- The declaration is given under LOC No. .
- The amount claimed is not more than the maximum aggregate amount available under the LOC.
Evergreen Letters of Credit
Evergreen LOCs are those that contain a provision providing for annual extensions, without amendment, for an indefinite number of periods until the issuing bank informs ICANN or its designee of its final expiration, or until ICANN or its designee releases the LOC as evidenced in writing.
The requirements for evergreen LOCs are the same as for standard LOCs in that ICANN or its designee must be able to draw on the LOC at any time by delivering notice, including but not limited to because of non-renewal or termination of the evergreen LOC. If this requirement is met, it is acceptable for evergreen LOCs to include statements such as the ones below:
- ICANN or its beneficiary certifies that it has received notice from [Bank A] that the LOC will not be renewed beyond its current expiration date, and the applicant has failed to source and deliver a replacement LOC in form and substance satisfactory to ICANN or its beneficiary.
- The undersigned, an authorized signer for ICANN or its beneficiary certifies that it has received a written notice from [Bank A] of the applicant's election not to extend the LOC for an additional period of one year and as of the date of this drawing, ICANN or its beneficiary has not received an acceptable replacement LOC. Therefore, ICANN or its beneficiary is drawing an amount under the LOC.