SWIFT (Society for World Interbank Financial Telecommunication System) platform – UPSC Prelims

Society for World Interbank Financial Telecommunication System (SWIFT):
  • SWIFT is global financial messaging service that enables financial institutions worldwide to send and receive information about financial transactions in secure, standardized and reliable environment.
  • It is used to transmit messages relating to cross border financial transactions.
  • It was founded in 1973 and is headquartered in La Hulpe, Belgium.
  • It is a cooperative society under Belgian law owned by its member financial institutions with offices around the world.
  • Globally over 11,000 financial institutions in more than 200 countries use services of SWIFT.
  • SWIFT does not facilitate funds transfer, rather, it sends payment orders, that must be settled by correspondent accounts that institutions have with each other.
  • On receiving this message through SWIFT, banks abroad, mostly branches of domestic banks abroad provide funds to the company.
  • Why in news?
    • Nirav Modi Scam with PNB was done by manipulating SWIFT System.
    • West sanctions on Russia after Ukraine attack.
How SWIFT Works?
  • Suppose a customer of a Bank of America of New York Branch want to send money to the ICICI bank account in Bengaluru, he can approach the Bank of America’s New York Branch with the account number of ICICI to which the money needs to be deposited and ICICI Banks Swift Code for the Bengaluru branch.
  • Bank of America’s New York Branch will send the payment message to the ICICI Bengaluru branch over the secure SWIFT network. Once ICICI ‘s Bengaluru branch receives the SWIFT message about the incoming payment, it will clear and credit the money to the account.
  • SWIFT code is used when the transfer between two banks happens internationally as we use IFSC codes for the domestic transfers i.e. financial transactions within the geographical territory of India.
What happens if one is excluded from SWIFT?
  • If a country is excluded from SWIFT, its foreign funding would take a hit, making it entirely reliant on domestic investors.
  • This is particularly troublesome when institutional investors are constantly seeking new markets in newer territories.
  • An alternative system would be cumbersome to build and even more difficult to integrate with an already expansive system.
How is the organization governed?
  • SWIFT claims to be neutral.
  • Its shareholders elect the 25-member board, which is responsible for oversight and management of the company.
  • It is regulated by G-10 central banks of Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, the United Kingdom, the United States, Switzerland, and Sweden, alongside the European Central Bank.
  • Its lead overseer is the National Bank of Belgium.
  • The SWIFT oversight forum was established in 2012.