SWIFT: Society for Worldwide Interbank Financial Telecommunication An Overview Contents About Why is it important? SWIFT Operations Stakeholders of SWIFT SWIFT offerings Overview of Message types Changes in SWIFT standards Types of Changes in SWIFT Standard Impact of Changes References 2 About (1 of 2) Society for Worldwide Interbank Financial Telecommunication SWIFT was founded in Brussels in 1973 Headquarters are in La Hulpe, Belgium, near Brussels SWIFT is a cooperative society under Belgian law and it is owned by its member financial institutions The chairman of SWIFT is Yawar Shah, who was born and raised in Pakistan The current CEO is Lzaro Campos, who is from Spain. Future CEO will be Gottfried Leibbrandt, currently head of marketing 3 About (2 of 2) Society for Worldwide Interbank Financial Telecommunication Provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment SWIFT does not facilitate funds transfer It sends payment orders, which must be settled by correspondent accounts that the institutions have with each other Physically SWIFT is just a combination of hardware, software, and people 4 Why is it important? (1 of 2) The majority of financial institutions around the world are connected to SWIFT. As of April 2012 5 Live countries212 Live members2,416 Live sub-members3,330 Live participants4,351 Total live users10,097 49% 44% 6% 1% 0% Distribution PaymentsSecuritiesTreasuryTradeSystemMarketsDistributionGrowth Payments49.40%9.30% Securities44.00%2.80% Treasury5.40%-2.50% Trade0.90%-1.10% System0.30%-1.60% Why is it important? (1 of 2) SWIFT has become the industry standard for syntax in financial messages Messages formatted to SWIFT standards can be read by, and processed by, many well-known financial processing systems, whether or not the message traveled over the SWIFT network SWIFT is also registration authority (RA) for the following ISO standards: 6 ISO 9362: 1994 BankingBanking telecommunication messagesBank identifier codes ISO 10383: 2003 Securities and related financial instrumentsCodes for exchanges and market identification ISO 13616: 2003 IBAN Registry ISO 15022: 1999 SecuritiesScheme for messages (Data Field Dictionary) (replaces ISO 7775) ISO 20022-1: 2004 and ISO 20022-2:2007 Financial servicesUNIversal Financial Industry message scheme In Conclusion: If you are a stakeholder in any kind of technology enabled financial business, it is imperative to be at least familiar with SWIFT SWIFT Operations SWIFT uses a distributed architecture for its operations SWIFT messaging services are organized into two processing zones, the European zone and the Trans-Atlantic zone, with pairs of operating centers that store the traffic for each zone. The SWIFT secure messaging network is run from two operational centers, one in the United States and one in the Netherlands. SWIFT opened a third data center in Switzerland, which started operating in 2009 Earlier, these centers shared information in near real-time. Post 9/11 and other compliance requirements data from European SWIFT members was no longer be mirrored to the US data center On 1 August 2010, the EU-US Agreement "on the processing and transfer of financial messaging data from the EU to the US for purposes of the Terrorist Finance Tracking Program" has entered into force but SEPA data are not in the scope of the EU-US agreement 7 Stakeholders (1 of 3) Customers Banks Other Financial institutions (e.g. insurance companies, mutual funds, hedge funds, pension funds) Banking market infrastructures (e.g. Clearing and Settlement houses) Broker/dealers Corporates Custodian banks Investment managers Securities market infrastructures (e.g. SEC, SEBI) 8 Stakeholders (2 of 3) Shareholders (also the users of SWIFT) Shareholder (Member) An eligible organization holding a share in S.W.I.F.T. SCRL, including banks, eligible securities broker-dealers and regulated investment management institutions Details about SWIFT shareholding can be found in the SWIFT By-laws Non-Shareholding Member A Non-Shareholding Member is an organization which complies with the eligibility criteria of a Shareholder (Member), and which has either chosen not to or is prevented from becoming a Shareholder Sub-Member A Sub-member is an organization more than 50 percent directly or 100 percent indirectly owned by a shareholder and which meets the criteria set forth for shareholder A Sub-member must be under full management control of the shareholder 9 Stakeholders (3 of 3) Management CXOs, senior and middle management Board of Directors Corporations working for clients who are members/users of SWIFT IT companies Consultancies 10 In Conclusion: Any change in the protocol/directives of SWIFT will impact all the stakeholders listed above SWIFT Offerings (1 of 4) Messaging Service This is the core and maximally subscribed service provided by SWIFT SWIFT provides its messaging services through SWIFTNet which is an application-independent, single window interface to all the connected applications of all the institutions participating in the global financial community The communication protocols under SWIFTNet can be classified as: 11 FIN is SWIFT's core store-and-forward messaging service. FIN value-added processing includes message validation to ensure messages are formatted according to SWIFT message standards, delivery monitoring and prioritization, message storage and retrieval FIN SWIFT Offerings (2 of 4) 12 FileAct allows secure and reliable transfer of files and is typically used to exchange batches of structured financial messages and large reports.FileAct is particularly suitable for bulk payments (e.g. SEPA-DD), securities value-added information and reporting, and for other purposes, such as central-bank reporting and intra-institution reportingFileAct Designed to complement FileAct and FIN, InterAct can support tailored solutions for market infrastructures, closed user groups and financial institutions.InterAct is well suited to mission- and time-critical applications such as Continuous Linked Settlement (CLS), SWIFTs Accord matching application or real-time gross settlement systems (RTGS) XML based and STP oriented InterAct Based on the "https" internet standard protocol Offers customers the capability to browse remote web servers using Alliance WebStation Easy integration in existing web servers SWIFT supports a set-up in which service providers operate multiple web servers for a service that end users can access through a single URL service name Browse SWIFT Offerings (3 of 4) Messaging Service entails the following components: Messaging standards: Every user of SWIFT has to comply with these standards to be able to use SWIFT Store and Forward mechanism of messages To support the messaging service SWIFT put in several services: 3SKey - allows corporates to sign financial messages and files sent to their banks Bilateral Key Exchange (BKE) was used to authenticate messages and transmit securely. It was replaced by Relationship Management Application (RMA) in 2009 to manage the business relationships between financial institutions Alliance Kits contain the SWIFT software required to access SWIFT messaging services: FIN, InterAct, FileAct and Browse 13 SWIFT Offerings (4 of 4) Value-added products and services SWIFT offers some extra services to increase customer value: Accord - Enabling real-time matching and exception handling for foreign exchange, money market, OTC derivative, and commodity trade confirmations Liquidity risk management Reference data of financial industry Closed User Groups SCORE, MA-CUG Support to SEPA, TARGET2 Web Platform SWIFT Gateways and several others For detailed description and comprehensive list of products and services, refer SWIFT website 14 Overview of Message types (1 of 4) SWIFT supports following message types: SWIFT MT, ISO 15022 MT,ISO 20022 MX SWIFT messages, consist of five blocks of data: 3 headers, message content, and a trailer All SWIFT messages include the literal "MT" (Message Type). This is followed by a 3-digit number that denotes the message category, group and type Consider the following example, which is an order to buy or sell via a third party: MT304 The first digit (3) represents the category. The category denoted by 3 is Treasury Markets. The second digit (0) represents a group of related parts in a transaction life cycle. The group indicated by 0 is a Financial Institution Transfer. The third digit (4) is the type that denotes the specific message. There are several hundred message types across the categories. 15 Overview of Message types (2 of 4) 16 Message TypeDescription MT0xxSystem Messages MT1xxCustomer Payments and Cheques MT2xxFinancial Institution Transfers MT3xxTreasury Markets MT4xxCollection and Cash Letters MT5xxSecurities Markets MT6xxTreasury Markets - Metals and Syndications MT7xxDocumentary Credits and Guarantees MT8xxTravellers Cheques MT9xxCash Management and Customer Status For detailed list and description of each message type, you may refer http://www.4alltrade.com/user/image/swift_categories_types_descriptions.pdf http://docs.oracle.com/cd/E19509-01/820-7113/ahcbi/index.html Overview of Message types (3 of 4) Within every message there are different fields marked by an identifier: 17 Field (within colons ::) & DataExplanation :20:PLANT-12345Senders Reference :21R:PLTOL101-56Customer Specified Reference :50G:/1234567891 PLATUS33 Ordering Customer :21:TR1-PLTransaction Reference :32B:USD118982,05Currency/Transaction amount :50L: PLANTOIL AXIMInstructing Party :57A:BBBBCNBJAccount With Institution :59:/60648929889 WUNG LU MANUFACTURING 23 XIAN MEN WAI AVE, BEIJING Beneficiary Overview of Message types (3 of 4) Illustration of use of different MTs 18 Changes in SWIFT standards (1 of 3) SWIFT introduces changes in its standards annually The changes are proposed through a high level standards release document 16 months prior to the go-live date of release For the Nov 2012 implementation date, the initial document is released in July 2011 The go-Live date is usually 17th Nov each year The changes proposed in initial high level document are subject to approval and rejection of country user groups and maintenance working group (MWG) 19 Changes in SWIFT standards (2 of 3) After incorporating the suggestions and voting by country groups, the final Standard Release Guide (SRG) is released in December of the year prior to go-live If any changes are made in SRG, the absolutely final SRG is released in February The High-level information and SRG are the reference documents for technical implementers (e.g. IT companies supporting banking Clients) and operational users to make suitable modifications to their systems to make them compatible with new standards 20 Changes in SWIFT standards (3 of 3) Triggers of Changes Improvement in technical features Correction in technical features Change in scope Changes in regulatory requirements (e.g. stringent AML standards) Improvement in integrity of messages (prevention of loss of or modification to message content) Making the information in messages more comprehensive and elaborate Compatibility with other standards Individual requests from customers Introduction of new systems (e.g. e-Cheques) Deletion of outdated standards Change in industry standards [MT to MX (ISO 20022)]21 Types of Changes in SWIFT standard 22 Source: High Level Information, Standards MT November 2012 Impact of Changes (1 of 2) Biggest impact of changes in SWIFT standards is on the IS of SWIFT users because they have to modified to be made compatible with new standards Technical implementers (IT companies and consultancies) are employed on a recurring basis to understand the impact of changes in standards on IS and modify them suitably Example: If new MT types are introduced or format is modified, the gateways to SWIFT have to be altered and also all the other sending and receiving systems of SWIFT messages have to be modified This chunk has the maximum cost impact 23 Impact of Changes (2 of 2) Other impacts include: Re-training of the personnel using SWIFT Modification of transaction processes Modification of Clearing and Settlement processes Retrospective impact on existing databases 24 References http://www.swift.com/ http://en.wikipedia.org/ http://www.bis.org/ 25