SWIFT NETWORK & SWIFT MESSAGING
WHAT IS SWIFT AND SWIFT NETWORK ?
SWIFT- Society for Worldwide Interbank Financial Telecommunication
SWIFT is acronym for " Society for Worldwide Interbank Financial Telecommunication " . The society provides network for sending and receiving secured messages , especially of financial transactions , among the member banks and financial institutions . Network software provided is also popularly known as SWIFT , though it is officially called SWIFTNet .
The society is headquartered in Belgium and has membership of more than 11,000 financial institutions from 200 countries . SWIFT was started in Brussels in 1973 with initial membership of 239 banks in fifteen countries . Now it is grown in to such large network that no financial institution can carry on their international business without the network provided by SWIFT . Presently more than 25 million messages are exchanged daily among member banks . In India all banks having international business are members of this society .
It is managed as a co-operative society owned by all its members and governed by Belgium law . It has two data centres , one each in Unites states and Netherlands .
You can reach official website of the society by clicking here
EU , USA & UK AGREE TO BLOCK RUSSIA FROM SWIFT SYSTEM :
Dated 28.02.2022 : It is reported that European Union , United States of America and United Kingdom have jointly agreed to put in place crippling sanctions on financial transactions with Russia , including denying access to SWIFT Messaging system to Russian banks . It is expected that the move will hurt Russian Currency value , trade and economic conditions . Earlier Iran & North Korea were banned from swift system .
The economic sanctions of the above countries will hurt Russian import and export with those countries . Further blockade of Russian banks will hurt the payment of trade Russia makes in Euro & Dollar terms with all other countries also . Now denying SWIFT system will hurt Russian banks further as they will not be able to exchange messages with third party banks via SWIFT . However Russia may revert to old system exchanging " keys " with banks in other parts of the world and trade with them in other currencies like Chinese Yuan . But it will be a herculean task for Russia to establish bilateral arrangement with each country that is not a participant in sanction . Ultimately the Russian economy and Russian banks will suffer .
As the headquarters of SWIFT is situated in Belgium , a part of EU , whether SWIFT will allow Russian Banks to operate the system as it's a society with members all over the world ? We have to wait for their decision in this regard . If a total ban is effected by SWIFT ,Russia a may participate in a parallel international payment system run by China called CIPS ( Cross- border International Payment System )
IMPACT ON INDIAN TRADE WITH RUSSIA : It is reported that India imports goods worth USD 6.9 Billion from Russia . India also exports goods worth USD 3. 33 Billions to Russia . Now payment route via US Dollar & Euro shut , India has to make new payment arrangements . It may make Indian Rupee / Russian Ruble based settlement operative with Russia so that trade can continue as hitherto . It may take time to establish a new system based on bilateral agreements . RBI may take an initiative in this regard . Until such arrangements are made , payment to Indian exporters will be delayed and Indian importers may find it difficult to import .
India mainly imports Fertilizers , oils and Rough diamonds . Its exports include pharmaceutical products . Fertilizer prices may be affected due to the ongoing dispute and war .
We have to wait and see the full impact of such sanction put for the first time .
RBI PENALIZES 36 BANKS ON NON-COMPLIANCE OF DIRECTIONS ON THEIR SWIFT OPERATIONS
Dated 11.03.2019 : Reserve Bank of India , vide their press release dated 08.03.2019 , informed that they have levied penalties on 36 banks operating in India including public sector banks , private sector banks and international banks for their non-compliance of instructions with regard to operation of SWIFT . The penalty ranges from Rs 1 crore to Rs 4 crores . The instructions were issued after a case with Punjab national Bank came to limelight in the beginning of 2018 in which the concerned bank lost more than Rs 11,000 crores due to misuse of SWIFT system .
RBI press release says :
" An assessment of compliance with RBI directions on implementation and strengthening of SWIFT-related operational controls of 50 major banks was carried out which revealed that banks had not complied with one or more of the major directions pertaining to (i) direct creation of payment messages in the SWIFT environment, (ii) implementation of Straight Through Processing (STP) between CBS/Accounting System and SWIFT system, (iii) ensuring that users entering/ passing/authorizing the transactions in CBS were different from those operating in SWIFT environment, (iv) independent reconciliation of logs generated from SWIFT with corresponding entry passed in the CBS/accounting system, (v) introduction of an additional layer of approval for all payment messages exceeding a particular threshold, and (vi) Nostro reconciliation on T+1/T+5 basis.
Based on the findings of the assessment and extent of non-compliance, Notices (SCNs) were issued to 49 banks advising them to show cause as to why penalty should not be imposed for non-compliance with directions issued by RBI as indicated therein. After considering the replies received from the banks, oral submissions made in the personal hearings, where sought by the banks, and examination of additional submissions, if any, RBI decided to impose monetary penalty on aforementioned 36 banks, based on the extent of non-compliance in each bank. "
For the complete list of banks penalized , amount of penalty and the press release , CLICK HERE
Who can become the members of SWIFT ?
Banks , Financial Institutions , custodians , investment institutions , central banks , market infrastructure providers and corporates can become the members of this society and exchange messages between them in a secured , reliable mode using SWIFT messaging services . Each member is given an unique code to identify them consisting of alphanumerical codes containing 8 to 11 characters . If a member has more than one terminal , which normally happens , each of the terminal will have a separate sub-code . The messages exchanged between the two financial terminals are confidential and no third party will have access to it . However to receive authenticated messages , members have to sign in to Relationship Management Application ( RMA ) , which replaced earlier system of Bilateral Key exchange ( BKE )
For example State Bank of India has SWIFT code of SBININBB and its Agartala branch terminal has code SBININBB476 .
Similarly SWIFT code of Punjab National Bank has SWIFT code of PUNBINBB and code of its chickpet , Bangalore branch is PUNBINBBBCP . They should have exchanged BKE to send and receive authenticated messages between the two . However those who have not exchanged BKE can still send and receive limited types of messages and they will be treated as unauthenticated messages .
Normally few officials of the member banks working in foreign exchange / international departments are given passwords to enter the network and are authorized to send and receive messages . Once the access is provided , there is no restriction either on numbers or amount of transactions they can undertake .
SWIFT MESSAGING SYSTEM :
SWIFT messaging in the SWIFT NETWORK only
Earlier banks used to use Telex system to send and receive payments and messages using bilateral keys exchanged between them till SWIFT software came in to existence to exchange messages . Now SWIFT messaging system has replaced the obsolete telex system for all international payments and messaging .
Present SWIFT software , called SWIFTNet , allows only its members to transmit and receive messages in the network and hence outsiders will not be able to use the software . The network is run on a highly secured environment . Messages can be sent only by authorised employees of the member institutions after authentication and validation by them . As software system is available only to the members , messaging system is less vulnerable to outside attacks of malware .
SWIFTNet has four complementary services :
1. FIN : It is messaging service between members in the traditional SWIFT MT standard formats . Each format has specific purpose . For example , MT 100 format sent suggests a payment to be made to a third party / customer while MT 400 suggests bank to bank payments . MT700 is used for issue of Documentary Credit ( Letter of Credit )
2. INTERACT : It allows messaging between the members like in FIN along with additional facilities of real time messaging and real time query and response in MX formats
3 . FILEACT : It allows transfer of files .
4. WEBACCESS : Members can browse through certain websites of financial institutions allowed on the SWIFT Network .
Thus SWIFT provides secured network for transmitting messages between financial institutions with a standard syntax which is understood by all participants . Further financial institutions can use SWIFT Alliance software to integrate their core banking solutions to the SWIFT messaging system .
We may note here that SWIFT is only a messaging system and it does not make any financial transaction . It only enables transmission of messages between two members and for all errors , commission and omissions of executing the instructions , individual members are responsible .
SWIFT MESSAGE TYPES :
SWIFT messaging is highly structured and formatted way of sharing messages between two financial entities . There are specific formats which are used for specific purposes . Some popular formats are
SWIFT Message Type Description primarily used for Customer credits
MT 101 Request for Transfer
MT 102 Multiple Customer Credit Transfer
MT 102+(STP) Multiple Customer Credit Transfer (STP)
MT 103 Single Customer Credit Transfer
MT 103+ (REMIT) Single Customer Credit Transfer (REMIT)
MT 103+ (STP) Single Customer Credit Transfer (STP)
MT 104 Direct Debit and Request for Debit Transfer Message (STP)
MT 105 EDIFACT Envelope
MT 106 EDIFACT Envelope
MT 107 General Direct Debit Message
MT 110 Advice of Cheque(s)
MT 111 Request for Stop Payment of a Cheque
MT 112 Status of a Request for Stop Payment of a Cheque
MT 121 Multiple Interbank Funds Transfer (EDIFACT FINPAY Message)
MT 190 Advice of Charges, Interest and Other Adjustments
MT 191 Request for Payment of Charges, Interest and Other Expenses
MT 192 Request for Cancellation
MT 195 Queries
MT 196 Answers
MT 198 Proprietary Message
MT 199 Free Format Message
SWIFT MESSAGE FORMATS FOR FINNACIAL ONSTITUTIONS FUNDS TRANSFER :
MT 200 Financial Institution Transfer for its Own Account
MT 201 Multiple Financial Institution Transfer for its Own Account
MT 202 General Financial Institution Transfer
MT 203 Multiple General Financial Institution Transfer
MT 204 Financial Markets Direct Debit Message
MT 205 Financial Institution Transfer Execution
MT 206 Cheque Truncation Message
MT 207 Request for Financial Institution Transfer
MT 210 Notice to Receive
MT 256 Advice of Non-Payment of Cheques
MT 290 Advice of Charges, Interest and Other Adjustments
MT 291 Request for Payment of Charges, Interest and Other Expenses
MT 292 Request for Cancellation
MT 295 Queries
MT 296 Answers
MT 298 Proprietary Message
MT 299 Free Format Message
SWIFT MESSAGES RELATING TO DOCUMENTARY CREDIT ( LETTER OF CREDITS )
MT 700 Issue of a Documentary Credit
MT 701 Issue of a Documentary Credit
MT 705 Pre-Advice of a Documentary Credit
MT 707 Amendment to a Documentary Credit
MT 710 Advice of a Third Bank’s Documentary Credit
MT 711 Advice of a Third Bank’s Documentary Credit
MT 720 Transfer of a Documentary Credit
MT 721 Transfer of a Documentary Credit
MT 730 Acknowledgment
MT 732 Advice of Discharge
MT 734 Advice of Refusal
MT 740 Authorization to Reimburse
MT 742 Reimbursement Claim
MT 747 Amendment to an Authorization to Reimburse
MT 750 Advice of Discrepancy
MT 752 Authorization to Pay, Accept or Negotiate
MT 754 Advice of Payment/Acceptance/Negotiation
MT 756 Advice of Reimbursement or Payment
MT 760 Guarantee
MT 767 Guarantee Amendment
MT 768 Acknowledgment of a Guarantee Message
MT 769 Advice of Reduction or Release
MT 790 Advice of Charges, Interest and Other Adjustments
MT 791 Request for Payment of Charges, Interest and Other Expenses
MT 792 Request for Cancellation
MT 795 Queries
MT 796 Answers
MT 798 Proprietary Message
MT 799 Free Format Message
There are various other formats like 300 series for Foreign Exchange transactions , 400 series for Collection items , 500 series for security markets , 600 series for precious markets etc
Security issues : Though SWIFT messaging system is robust , secured and private . there are reports of attempts to hack the system to steal away funds from members' accounts . One such successful attempt reported was in the case of Bangladesh Central Bank in 2016 , where it is reported that more than USD 81 million was stolen by hacking Alliance Access software . Another attempt reported was from Vietnam also in 2016 .
Similar attempts to hack SWIFT software has been reported from countries like Ecuador and Ukrine
SWIFT INDIA : SWIFT India Domestic Services Pvt Ltd (“SWIFT India” or “the Company”), founded on similar principles as SWIFT , is a financial messaging services provider formed by SWIFT SCRL and Indian banks, for the domestic Indian financial community and by the community.
The shareholders of SWIFT India currently comprise of (in alphabetical order) AXIS Bank Ltd, Bank of Baroda, Bank of India, Canara Bank, Citibank, HDFC Bank Ltd, ICICI Bank Ltd, Punjab National Bank, Standard Chartered Bank, State Bank of India, SWIFT SCRL and Union Bank of India.
Through shared resources and capital, SWIFT India functions with the objective of enabling exchange of structured financial information between domestic participants in the domestic Indian community .
SERVICES OF SWIFT INDIA :
1. Payment and Cash management services : Member banks / corporates can make payments directly via " Straight Through Process "
2 . FX Messaging among participants
3. Trade messaging among participants like Letter of credit or Gurantees etc
4. Automated e-stamping of guarantees
WHO CAN JOIN SWIFT NETWORK ?
Normally following categories of institutions join the Swift Network :
BanksPayment, securities and treasury market infrastructures
Broker/dealers
Custodians
Investment managers
Fund participants
Corporates
Exchanges
Matching utilities
Clearing houses
An organization in India , who is interested to avail the services of SWIFT , can contact SWIFT INDIA for guidance and to complete necessary formalities
PNB CASE OF MISUSE :
A case is reported from State owned Punjab National Bank , Mumbai India where in officials misused the permission to access the SWIFT to open Letter Of Undertakings ( LOU ) on behalf of corporate customer Mr Nirav Modi and other associate companies dealing in diamonds , which were not authorized . Amount involved is reported over Rs 11,400 crores . Some officials of the bank and corporates are under custody and investigation is going on .
Normally Letter of Undertaking ( LOU ) is issued on behalf of a import customer to the exporter's bankers , requesting to extend the loan based on the documents submitted with an undertaking to repay the loan on due date with a specified interest rate . It is alleged that officers issuing such LOUs had not obtained necessary permission from higher ups or collateral security from the importers . It is reported that number of LOUs were transmitted over SWIFT from Punjab National bank , Mumbai Branch over the years 2008 to 217 to various Indian banks situated abroad . No collateral security was obtained from the beneficiary companies . The issue has come out to light in January 2018 , after one of the officials retired from services . We have to wait for investigation details to know how exactly bank lost such a huge amount over the years without authorities realizing the fraud .