SWIFT facts for kids

Quick facts for kids
S.W.I.F.T. SC

Type	Cooperative society
Industry	Telecommunications
Founded	3 May 1973; 51 years ago (1973-05-03)
Headquarters	La Hulpe, Belgium 50°44′04″N 4°28′43″E / 50.73444°N 4.47861°E / 50.73444; 4.47861
Key people	Javier Perez-Tasso (CEO) Graeme Munro (Board Chair)
Products	Financial telecommunication
Number of employees	>3,000

The Society for Worldwide Interbank Financial Telecommunication (Swift), legally S.W.I.F.T. SC, is a cooperative established in 1973 in Belgium (French: Société Coopérative), owned by the banks and other member firms that use its service. SWIFT provides the main messaging network through which international payments are initiated. 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, 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).

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. 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".

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. Fundamental operating procedures and rules for liability were established in 1975, and the first message was ceremonially sent by Prince Albert of Belgium on 9 May 1977.

SWIFT's first non-European operations centre was inaugurated by Governor John N. Dalton of Virginia in 1979. In 1989 SWIFT completed a monumental new head office building in La Hulpe, designed by Ricardo Bofill Taller de Arquitectura.

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 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 of Australia, Deutsche Bank, Euroclear, FirstRand, HSBC, ING, Intesa Sanpaolo, KBC, MUFG, NatWest, Nordea, Royal Bank of Canada, Santander, SEB, UBS (2 representatives following the acquisition of Credit Suisse), as well as the Association of Banks in Singapore.

Operations

SWIFT logo before 2023

Swift acts as a carrier of the "messages containing the payment instructions between financial institutions involved in a transaction". 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. After a payment has been initiated, it must be settled through a payment system, such as TARGET2 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:

1. a secure network for transmitting messages between financial institutions;
2. a set of syntax standards for financial messages (for transmission over SWIFTNet or any other network)
3. a set of connection software and services allowing financial institutions to transmit messages over SWIFT network.

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:

• SWIFTNet Link (SNL) software which is installed on the SWIFT customer's site and opens a connection to SWIFTNet. Other applications can only communicate with SWIFTNet through the SNL.
• Alliance Gateway (SAG) software with interfaces (e.g., RAHA = Remote Access Host Adapter), allowing other software products to use the SNL to connect to SWIFTNet
• Alliance WebStation (SAB) desktop interface for SWIFT Alliance Gateway with several usage options:
  1. administrative access to the SAG
  2. direct connection SWIFTNet by the SAG, to administrate SWIFT Certificates
  3. so-called Browse connection to SWIFTNet (also by SAG) to use additional services, for example Target2
• Alliance Access (SAA) and Alliance Messaging Hub (AMH) are the main messaging software applications by SWIFT, which allow message creation for FIN messages, routing and monitoring for FIN and MX messages. The main interfaces are FTA (files transfer automated, not FTP) and MQSA, a WebSphere MQ interface.
• The Alliance Workstation (SAW) is the desktop software for administration, monitoring and FIN message creation. Since Alliance Access is not yet capable of creating MX messages, Alliance Messenger (SAM) has to be used for this purpose.
• Alliance Web Platform (SWP) as new thin-client desktop interface provided as an alternative to existing Alliance WebStation, Alliance Workstation (soon) and Alliance Messenger.
• Alliance Integrator built on Oracle's Java Caps which enables customer's back office applications to connect to Alliance Access or Alliance Entry.
• Alliance Lite2 is a secure and reliable, cloud-based way to connect to the SWIFT network which is a light version of Alliance Access specifically targeting customers with low volume of traffic.

Services

There are four key areas that SWIFT services fall under in the financial marketplace: securities, treasury & derivatives, trade services, and payments & cash management.

Swift Ref, the global payment reference data utility, is SWIFT's unique reference data service. Swift Ref sources data direct from data originators, including central banks, code issuers and banks making it easy for issuers and originators to maintain data regularly and thoroughly. SWIFTRef constantly validates and cross-checks data across the different data sets.

Operations centres

The SWIFT secure messaging network is run from three data centres, located in the United States, the Netherlands, and Switzerland. These centres share information in near real-time. In case of a failure in one of the data centres, another is able to handle the traffic of the complete network. SWIFT uses submarine communications cables to transmit its data.

Shortly after opening its third data centre in Switzerland in 2009, SWIFT introduced new distributed architecture with two messaging zones, European and Trans-Atlantic, so data from European SWIFT members no longer mirrored the U.S. data centre. European zone messages are stored in the Netherlands and in part of the Swiss operating centre; Trans-Atlantic zone messages are stored in the United States and in another part of the Swiss operating centre that is segregated from the European zone messages. Countries outside of Europe were by default allocated to the Trans-Atlantic zone, but could choose to have their messages stored in the European zone.

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:

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 involving institution C, it formats the message according to standards 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.

During 2007 and 2008, the entire SWIFT network migrated its infrastructure to a new protocol called SWIFTNet Phase 2. The main difference between Phase 2 and the former arrangement is that Phase 2 requires banks connecting to the network to use a Relationship Management Application (RMA) instead of the former bilateral key exchange (BKE) system. According to SWIFT's public information database on the subject, RMA software should eventually prove more secure and easier to keep up-to-date; however, converting to the RMA system meant that thousands of banks around the world had to update their international payments systems to comply with the new standards. RMA completely replaced BKE on 1 January 2009.

SWIFT 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 for defining standards for message format and content. SWIFT is also Registration authority (RA) for the following ISO standards:

• 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)
• ISO 20022-1: 2004 and ISO 20022-2:2007 Financial services – Universal Financial Industry message scheme

In RFC 3615 urn:swift: was defined as Uniform Resource Names (URNs) for SWIFT FIN.

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 U.S. and the European Central Bank) started acting as joint overseers, with the National Bank of Belgium (NBB) in a lead role. The oversight focueses primarily on systemic risk, confidentiality, infrastructure security, and business continuity. It is formalized in bilateral documents between the NBB and SWIFT on the one hand, and between the NBB and each of the other G10 central banks on the other hand. In 2018, the International Monetary Fund has recommended that "[t]he National Bank of Belgium should consider enhancing oversight with additional regulatory and supervisory powers."

In 2012, this framework was complemented by a "SWIFT Oversight Forum" including additional central banks. As of 2024, in addition to the G10 central banks, the SWIFT Oversight Forum included the national central banks of Argentina, Australia, Brazil, China, Hong Kong, India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, Singapore, South Africa, Spain, and Turkey. According to SWIFT, the Oversight Forum "provides a forum for the G-10 central banks to share information on Swift oversight activities with a wider group of central banks."

Alternatives

Purported alternatives to the SWIFT system include:

1. 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.
2. SFMS: sponsored by India
3. SPFS: developed by the Russian Federation
4. INSTEX: sponsored by the European Union, limited to non-USD transactions for trade with Iran, largely unused and ineffective

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, Dutch), 2000-2006
• Yawar Shah (JPMorgan then Citi, American), 2006-2022
• Mark Buitenhek (ING, Dutch), acting 2022-2023
• Graeme Munro (JPMorgan, British), since 2023

Chief Executive Officer

• Carl Reuterskiöld, 1973-1983
• Bessel Kok, 1983-1991
• Jacques Cerveau (interim CEO), 1991
• Leonard (Lennie) Schrank, 1992-2007
• Lazaro Campos, 2007-2012
• Gottfried Leibbrandt, 2012-2019
• Javier Pérez-Tasso, since 2019

See also

In Spanish: SWIFT para niños

• Bilateral key exchange and the new Relationship Management Application (RMA)
• Electronic money
• Indian Financial System Code (IFSC)
• ISO 9362, the SWIFT/BIC code standard
• ISO 15022
• ISO 20022
• Single Euro Payments Area (SEPA)
• Sibos conference
• TIPANET
• Value transfer system