The Society for Worldwide Interbank Financial Telecommunication (SWIFT), legally S.W.I.F.T. SC, is a cooperative established in 1973 in Belgium and owned by the banks and other member firms that use its service. SWIFT provides the main messaging network through which international payments are initiated.[2] It also sells software and services to financial institutions, mostly for use on its proprietary "SWIFTNet", and assigns ISO 9362 Business Identifier Codes (BICs), popularly known as "SWIFT codes".
As of 2018, around half of all high-value cross-border payments worldwide used the SWIFT network,[3] and in 2015, SWIFT linked more than 11,000 financial institutions in over 200 countries and territories, who were exchanging an average of over 32 million messages per day (compared to an average of 2.4 million daily messages in 1995).[4]
SWIFT is headquartered in La Hulpe near Brussels. It hosts an annual conference, called Sibos, specifically aimed at the financial services industry.
History
Before SWIFT's establishment, international financial transactions were communicated over Telex, a public system involving manual writing and reading of messages.[5] The collapse of the Bretton Woods agreement in 1971, the decoupling of the US dollar's convertibility to gold, a period in economic history now known as the "Nixon shock", shifted major currencies to floating exchange rates and increased the volume of cross-border transactions. That in addition to already increasing amounts of international trade made the existing Telex system insufficient.[6] In this novel period of international trade in a floating exchange rate environment, SWIFT was set up out of fear of what might happen if a single private and fully American entity controlled global financial flows – which before was First National City Bank (FNCB) of New York – later Citibank. In response to FNCB's protocol, FNCB's competitors in the US and Europe pushed an alternative "messaging system that could replace the public providers and speed up the payment process".[7]
SWIFT was founded in Brussels on 3 May 1973. Individuals who played a key role in its creation included bankers Jan Kraa (at AMRO Bank) and François Dentz (at the Banque de l'Union Parisienne) as well as Carl Reuterskiöld and Bessel Kok, who became respectively its first two chairmen and chief executives. It was initially supported by 239 banks in 15 countries. It soon started to establish common standards for financial transactions and a shared data processing system and worldwide communications network designed by Logica and developed by the Burroughs Corporation.[8] Fundamental operating procedures and rules for liability were established in 1975, and the first message was ceremonially sent by Prince Albert of Belgium on 1977/05/09.
SWIFT's first non-European operations centre was inaugurated by Governor John N. Dalton of Virginia in 1979.[9] In 1989 SWIFT completed a monumental new head office building in La Hulpe, designed by Ricardo Bofill Taller de Arquitectura.[10]
Ownership and governance
SWIFT's shareholding structure is adjusted every three years in proportion to volumes of activity incurred by the members, ensuring that the most active members get the most voice irrespective of geography; additional rules are aimed at ensuring some geographical diversity within the board of directors. The 25 directors are elected by the shareholders, on three-year terms with the renewal of one-third of the board every year; all directors are member representatives.
As of May 2024, the members directly represented on the board of directors were JPMorgan Chase (chair), Lloyds Bank (deputy chair), Bank of China, BNP Paribas, BPCE, Citi, Clearstream, Commerzbank, Commonwealth Bank, Deutsche Bank, Euroclear, FirstRand, HSBC, ING
Operations
SWIFT acts as a carrier of the "messages containing the payment instructions between financial institutions involved in a transaction".[12] However, the organisation does not manage accounts on behalf of individuals or financial institutions, and it does not hold funds from third parties. It also does not perform clearing or settlement functions.[12] After payment has been initiated, it must be settled through a payment system, such as T2 in Europe. In the context of cross-border transactions, this step often takes place through correspondent banking accounts that financial institutions have with each other.
SWIFT means several things in the financial world:
Under 3 above, SWIFT provides turn-key solutions for members, consisting of linkage clients to facilitate connectivity to the SWIFT network and CBTs or "computer-based terminals" which members use to manage the delivery and receipt of their messages. Some of the more well-known interfaces and CBTs provided to their members are:
- 1) a secure network for transmitting messages between financial institutions;
Standards
SWIFT has become the industry standard for syntax in financial messages. Messages formatted to SWIFT standards can be read and processed by many well-known financial processing systems, whether or not the message travelled over the SWIFT network. SWIFT cooperates with international organizations to define standards for message format and content. SWIFT is also a registration authority (RA) for the following ISO standards:[20] In RFC 3615 urn:swift: was defined as Uniform Resource Names (URNs) for SWIFT FIN.[21]
- ISO 9362: 1994 Banking – Banking telecommunication messages – Bank identifier codes
- ISO 10383: 2003 Securities and related financial instruments – Codes for exchanges and market identification (MIC)
- ISO 13616: 2003 IBAN Registry
- ISO 15022: 1999 Securities – Scheme for messages (Data Field Dictionary) (replaces ISO 7775)
Supervision
SWIFT is not a payment system and thus neither regulated nor supervised as such, but is nevertheless deemed to be systemically important and thus under the "oversight" of public authorities. In 1998, the so-called Group of Ten central banks (those of Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, the Federal Reserve Board and the Federal Reserve Bank of New York for the US and the European Central Bank) started acting as joint overseers, with the National Bank of Belgium (NBB) in a lead role. The oversight focuses primarily on systemic risk, confidentiality, infrastructure security, and business continuity.
Alternatives
- Current: Purported alternatives to the SWIFT system include:[25]
- 1) BRICS Pay: by BRICS member nations
- 2) CIPS: sponsored by China, for RMB-related deals. 1467 financial institutions in 111 countries and regions have connected to the system. The actual business covers more than 4,200 banking institutions in 182 countries and regions around the world.[26][27][28]
- 3) SFMS: sponsored by India
Leadership
Chair
- Johannes Kraa (AMRO Bank, Dutch), 1973–1974
- François Dentz (Crédit du Nord, French), 1974–1976
- Helmer Hasselblad (Swedish), 1976–1984
- W. Robert Moore (Chemical Bank, American), 1984–1989
- Richard Fröhlich (Austrian), 1989–1992
- Eric C. Chilton (Barclays, British), 1992–1996
- Jean-Marie Weydert (Société Générale, French), 1996–2000
- Jaap Kamp (ABN AMRO
Controversy
Inefficiency
SWIFT has been criticised for inefficiency. In 2018, the London-based Financial Times noted that transfers frequently "pass through multiple banks before reaching their final destination, making them time-consuming, costly and lacking transparency on how much money will arrive at the other end".[3] SWIFT has since introduced an improved service called "Global Payments Innovation" (GPI), claiming it was adopted by 165 banks and was completing half its payments within 30 minutes.[3] The new standard which included SWIFT Go was supposed to be utilised in receiving and transferring low-value international payments. One of the significant changes was the transaction amount, which would not differ from start to end. However, as of 2023, uptake was mixed. For instance, Alisherov Eraj, Alif Bank Treasury Department SWIFT Transfers & Banking Relationship Expert in the Republic of Tajikistan, describes that the leading cause for the late SWIFT Go adoption in Tajikistan was the Core Banking System itself. To connect to SWIFT Go, he adds, banking system interfaces needed to be upgraded and integrated with their software to be fully compatible; this hindered many banks from adopting the technology earlier.
US government surveillance
See also
- BRICS PAY
- Electronic money
- Indian Financial System Code (IFSC)
- Single Euro Payments Area (SEPA)
- TIPANET
- Value transfer system
Further reading
External links
References
- CBE Public Search kbopub.economie.fgov.be, FPS Economy, SMEs, Self-Employed and Energy, retrieved 27 February 2022^
- Susan V. Scott, Markos Zachariadis. The Society for Worldwide Interbank Financial Telecommunication (Swift) : cooperative governance for network innovation, standards, and community Routledge, 2014^
- Martin Arnold.