What is SWIFT
Posted on June 26, 2009 | What at mybiginfo.com | What is SWIFT | | View all What | |
Swift Network
SWIFT is the acronym for the Society for Worldwide Interbank Financial Telecommunications. This full name sets out quite clearly the main remit of SWIFT as a highly secured private telecommunications network set up originally for the exclusive use of banks, financial institutions and related market infrastructures (e.g. clearing systems). Its secondary role has always been as a standards organisation; developing and managing financial message standards for a whole range of purposes. These messages have been designed to promote straight through processing (STP) when used by banks, market infrastructures, and bank customers. As such SWIFT does not provide clearing or settlement services, nor does it transfer money. It acts as a secure link between the financial community to exchange messages about money. In many cases the clearing and settlement systems will also use both the SWIFT network and messages standards. SWIFT is owned by its members, approximately 7,500 financial institutions, and operates in just over 200 countries. On some days it may move in excess of 10 million messages between market participants.
Why SWIFT
Many of the exchanges between banks and corporates using electronic, Internet or server-to-server banking are carried out using SWIFT message standards. Most international bank-to-bank and branch-to-branch transactions relating to corporate payments and account information also use SWIFT – both the message standards and the network. The message types (MTs) are divided into various categories. The most widely used for corporate business are the 100 and 900 message series, but certain others will be used on occasions.
The 100 series was for many years dominated by the MT100, a single customer transfer. This message, sent from a remitting bank (or branch) to a receiving bank (or branch), would be used to instruct the receiving bank to debit the sending bank’s nostro account (correspondent account held in a foreign country) and to remit funds through the local clearing in the receiving bank’s country to a beneficiary at another bank. This message had a number of non-mandatory fields that could be used for different purposes, and as remitting banks started to use these, the incoming messages could not be processed automatically on receipt at the receiving bank.
Therefore in 2003 this message was replaced by the MT103 which has been specifically designed for STP purposes. MT101 messages are used for multi-banking, where a corporate uses one bank as its lead payments bank and takes that bank’s electronic banking system, but wants to channel payment instructions through that bank to other banks that it uses. The MT101 is sent to the account holding bank through the lead bank, and having been previously authorised by the initiating customer (one-off authority) will debit the customer’s account and make the payment. MT102 messages are often used for server-to-server instructions where a customer sends a file of non-urgent payment instructions to his bank. These will be processed as a batch, usually at the end of the day by the bank and may be sent via SWIFT to the paying bank or branch also as a batch.
Other 100 series messages include MT104 used for direct debits and MT105 and 106 used for exchanging EDIFACT messages. The 200 series messages are generally used as bank-to-bank messages, but two will be used for corporate payments in certain cases. When a bank needs to make a payment on behalf of a company to a bank that it has no relationship with, it will need to instruct its correspondent bank to move funds to that bank. One way of doing this is to use a MT202 cover payment message. The 300 series is used for foreign exchange transactions and confirmations, the 500 series for securities messages and the 700 series for trade finance transactions. The other widely used category of messages is the 900 series, which provides for reporting account activity. The most widely used message is the MT940, which contains a customer bank statement. This message can be sent from an account holding bank or branch to a lead bank, which will then report the detail received to its customer through its own proprietary electronic banking system.
The MT940 is an end-of-day message that will be seen by the customer the next working day. The MT942 is used to provide details of transaction activity across bank accounts during the working day and the MT941 reports changes to account balances due to such movements, again same day. These latter two messages are often used by banks to provide intra-day or real-time reporting to customers through their own electronic banking systems.
SWIFT Message Types
SWIFT messages are identified by an MT or MX prefix and a three-digit number. The prefix identifies the specific implementation of the message either, text (MT) or XML (MX). The first digit defines the message category, indicating the general use of the message, the second digit defines the message group and the third digit defines particular message function.
Each type of message or condition in each category is preset as well. For instance, there are 89 different messages available under the category MT500. This does not include the occasional sub code. Certain phrases are allowable; however, but these must be short and to the point, not exceeding a certain number of letters, and the phrases must be acceptable under SWIFT standards.
Each MT category has its own manual of standards. Depending on the size of the financial institution, each department may only be familiar with the MT manual that pertains to wire transfers made by that department. What this means is that one cannot write SWIFT instructions that do not work with the preset messages and expect the sending bank to accept them, or the receiving bank to respond.
What does a SWIFT look like?
A SWIFT consists of a one-page document containing the name and code of the originating bank, the date and time, the address and code of the receiving bank, the name and internal code of the officer initiating the transmission, the names and numbers of the accounts involved in the transfer, a description of the asset being transferred, the MT category of the transmission, and acceptable, standardized phrases as described above.
SWIFTNet Network
SWIFT moved to its current IP Network infrastructure, known as SWIFTNet, from 2001 to 2005, providing a total replacement of the previous X.25 infrastructure. The process involved the development of new protocols that facilitate efficient messaging, using existing and new message standards. The adopted technology chosen to develop the protocols was XML, where it now provides a wrapper around all messages legacy or contemporary. The communication protocols can be broken down into:
InterAct
* SWIFTNet InterAct Realtime
* SWIFTNet InterAct Store and Forward
FileAct
* SWIFTNet FileAct Realtime
* SWIFTNet FileAct Store and Forward
Browse
* SWIFTNet Browse
SWIFT Architecture
SWIFT provides a centralized store-and-forward mechanism, with some transaction management. For bank A to send a message to bank B with a copy or authorization with institution C, it formats the message according to standard, and securely sends it to SWIFT. SWIFT guarantees its secure and reliable delivery to B after the appropriate action by C. SWIFT guarantees are based primarily on high redundancy of hardware, software, and people.
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