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SWIFT for Corporates

The mere mention of SWIFT can send corporate treasurers scurrying for cover – and understandably so. The current economic environment and industry initiatives such as SEPA are providing enough challenges without another assignment being added to the project pile. But implementing the SWIFT for Corporates solution is not as difficult as many may think and the opportunities derived from it could outweigh the investment and effort put in.

What is SWIFT for Corporates?

SWIFT for Corporates is the collective name used to refer to the SWIFTNet platform, standards and services available to corporates for communicating financial information with their banks. It offers corporates a single messaging interface for exchanging data relating to their treasury and cash management activities, eliminating the need for a different connection with every banking relationship. This bank neutrality provides corporates with greater independence and therefore the ability to switch relationships more efficiently and cost-effectively. It can also be seen as an enabling tool in treasury restructuring and/or centralisation. However, it does not enable communication from corporate to corporate.

SWIFTNet

SWIFTNet is the private global messaging network owned and operated by SWIFT, a co-operative of financial institutions working to define market practice, establish standards and develop messaging solutions relating to payments and other financial transactions within the financial industry. SWIFTNet is not a payment, clearing or settlement system but simply a means of sending financial data in messages between different parties, ie the route or channel to get a message from one party to another.

SWIFTNet is a Secure Internet Protocol Network (SIPN) that provides a safe messaging environment for transactions through end-to-end encryption and a Public Key Infrastructure (PKI). The use of PKI assures the authenticity, integrity, confidentiality and non-repudiation of messages between systems.

The network is renowned within the financial industry as being extremely secure, robust and reliable with a 99.9% availability record. SWIFT for Corporates therefore gives organisations the opportunity to take full advantage of the high performance levels that the bank-to-bank space has enjoyed for many years. This, in turn, promotes speed and consistency and can lead to improved accuracy in cash flow forecasting and liquidity management.

Messaging services

SWIFT offers several messaging options which member banks can use to build their own services for clients. The options open to corporates will depend on the services each of their banks chooses to provide. The more commonly used services are SWIFTNet FIN and SWIFTNet FileAct but many banks also offer SWIFTNet InterAct to complement their suite of SWIFT products.

SWIFTNet FIN

SWIFTNet FIN (FIN) is the core SWIFT messaging service for financial transactions. Corporates can use it for individual high value and urgent payments (payment orders and pre-advices), receiving bank statements, exchanging deal confirmations (eg foreign exchange or money markets) and instructing securities activity. The messages used are the SWIFT MT type formats such as the MT101 Request for Transfer and the MT940 Statements of Account.

Each message is processed and verified individually to ensure it complies with the FIN format. The message is held at a central node pending delivery to the recipient bank as soon as it ‘logs’ online. In reality, most users remain online all the time but this ‘store and forward’ mechanism ensures that the message does not fail or is not lost if there are problems with the network or user’s connection.

SWIFTNet FileAct

SWIFTNet FileAct (FileAct) is a secure file transfer system used for bulk messaging. It is used primarily for low value and high volume transactions such as accounts payable and receivable, eg Automated Clearing House transactions (ACH), direct debits and salary payments. It is available real-time or via a store and forward mechanism. The file acts as an envelope containing a batch of messages which are sent to the bank for processing. However, it is not necessary to use the specific SWIFT standards for these messages. Instead it allows various message formats, as agreed between the corporate and their bank. These include FIN, proprietary formats (eg SAP iDoc), country specific standards (eg BACS Standard 18 in the UK) or international standards (eg XML or EDIFACT).

SWIFTNet InterAct

SWIFT offers interactive (real-time) messaging services via SWIFTNet InterAct (InterAct). Based on XML standards, it enables an automatic and immediate response to messages between two systems/parties and is therefore targeted at time-critical activities.

Other SWIFT messaging services include:

  • SWIFT Accord.

    A deal confirmation matching and exception handling facility (foreign exchange, money market and derivatives).

  • Exceptions and Investigations.

    An online enquiry management service.

  • Mail.

    A desktop package for sending information via email through SWIFTNet.

SWIFT’s interactive range also includes Browse, a browser capability available using SWIFT’s Alliance Webstation. Based on the secure ‘https’ internet standard protocol, it enables the user to access remote web servers (eg those belonging to their service providers) in order to exchange InterAct and FileAct messages using a browser link whilst retaining the high security and reliability provided by SWIFTNet.

Accessing SWIFT

In order to access SWIFT, corporates have three options.

SCORE

Since 2007, the Standardised Corporate Environment (SCORE) has been the main model for corporate participation in SWIFT. It is a Closed User Group (CUG) administered by SWIFT with clear rules and standards for sending FIN messages and/or FileAct files using the SCORE model. Corporate participation in SCORE requires registration with SWIFT but only corporates listed on the stock exchange of a country in the Financial Action Task Force (FATF) are eligible to join.

In SCORE, corporates are able to exchange messages and/or files with any SCORE registered bank through a single SWIFT interface. The messages and/or files cover corporate treasury and cash management activities. As of November 2008, corporates will also be able to exchange trade information using SWIFT MT798 or FileAct.

MA-CUG

The Member Administered Closed User Group (MA-CUG) was the first model through which corporates were able to exchange a broad range of treasury and cash management messages via the SWIFT network. Set up in 2001, it opened up SWIFT to corporates through a bank sponsorship structure.

Each bank is responsible for its own MA-CUG and for approving corporate participation in that MA-CUG. Accordingly, a corporate must register with every bank MA-CUG it wishes to join and adhere to the messages and formats it has defined. Some corporates therefore find themselves abiding by different rules and standards for each MA-CUG they belong to.

To help address this issue, SWIFT operates a SCORE compliant MA-CUG label scheme which is awarded to banks able to specify that their MA-CUG model adheres to the SCORE standards. This brings the advantages of improved standardisation to those corporates not eligible to participate in SCORE.

As Corinne Babok, Senior Product Manager at Société Générale, explains:

“We have a wide spectrum of corporate customers, with varying sizes and degrees of internationalisation. We want to offer these customers the whole range of cash management functionality, while using the most accurate, reliable and secure channel available, as well as expanding the benefits of this capability across all our branch locations around the world.

As SCORE participation is restricted, those customers who do not meet the SWIFT requirements might not get the benefits of a SCORE level of service. To meet the needs of those customers, we have enhanced the FIN and FileAct characteristics of our MA-CUG to comply with SCORE requirements, offering a consistent service through both channels.

We also committed to continued future adherence to the SCORE specification. As a result, SWIFT has granted us the SCORE-compliant label.”

TRCO

Treasury Counterparty (TRCO) was launched in 1998 and is used for exchanging treasury confirmations with any financial institution, via SWIFTNet. Each corporate must be sponsored by eight SWIFT member financial institutions. The model still exists, although confirmation services are also available through SCORE and MA-CUGs.

Connecting to SWIFT

SWIFT has four telecommunication partners who provide the IP virtual private network (VPN) through which users connect to SWIFTNet. These are AT&T, BT Infonet, Colt and Orange Business Services. The required software for connecting internal systems to SWIFT and for accessing the network can be supplied either directly by SWIFT or via a third-party vendor.

SWIFT offers a range of connectivity products within its ‘Alliance’ suite. It also operates a partner programme for providers offering SWIFT services, as well as a ‘SWIFT Ready’ certification programme for providers and their applications to help potential and existing users identify SWIFT compliant solutions.

There are three ways through which corporates can achieve connectivity:

  1. Direct access.

    The technical infrastructure is located at the corporate’s offices, requiring substantial up-front investment and on-site technical support and expertise for ongoing management and maintenance of the connection.

  2. Service Bureau (indirect access).

    The technical infrastructure is hosted and maintained by a third-party, providing specialist knowledge, full disaster recovery and value added features such as the conversion of messages to SWIFT format.

  3. Member/concentrator (indirect access).

    Infrastructure is hosted and maintained by a third-party offering the same benefits as the service bureau model. However, the member/concentrator has to be a SWIFT member and they offer a broader remit of services, including administration of the SWIFT contract such as registration and receiving SWIFT invoices.

One of SWIFT’s latest additions to its Alliance product range is a new ‘lite’ interface (Alliance Lite) which connects corporates directly to SWIFTNet via the internet using a SWIFT issued hardware token on a USB memory stick. Message data can be entered manually through a browser or the service can be integrated with the back-office using ‘autoclient’ software.

Alliance Lite is targeted at smaller corporates (and other organisations) exchanging less than 200 messages per day. It is expected to be available later this year. How it will impact the role of the service bureaux in providing SWIFT access for low volume users remains to be seen.

Developing solutions

As a leading standardisation body, SWIFT is harnessing the new opportunities offered by the UNIFI ISO20022 XML standards, recognising its value in improving straight through processing along the financial supply chain. It has developed (and continues to develop) messages in line with these standards and in support of industry initiatives such as the Single Euro Payments Area (SEPA).

Corinne Babok at Société Générale, says:

“Over time, we expect to see a gradual but complete migration from FIN to XML messages. Although FIN is currently widely used, XML’s advantages will prove compelling: a richer content will help gain acceptance throughout the financial supply chain, and its inherently flexible nature will allow new or existing corporate customers to express a wider set of needs, which can then be progressively incorporated, and will propogate through the financial processing chain.”

Encouraging more organisations to sign up to SWIFT for Corporates is therefore critical for promoting developments to address their needs.

SWIFT’s corporate access strategy is largely guided by the Corporate Access Group (CAG). Its representatives consider the views of corporates, banks and SWIFT in order to propose suitable solutions for the corporate community. SCORE was developed as a result of a CAG proposal for simplified corporate access to SWIFT when the MA-CUG model was seen as too complex and costly.

SWIFT continues to work actively with its members to see how solutions being used in the bank-to-bank environment can be applied in the corporate world. For example, it is currently undertaking a study with a group of banks to see how personal digital signatures can be standardised to authorise instructions in a way that will be accepted by all banks in any country. Banks need to check customer signatures against bank mandates, which is a straightforward procedure when a bank’s own connection is being used (usually via a hardware security token) but with a multi-bank interface the situation is more complex.

Making the move

Recent and ongoing developments are making it easier for corporates, regardless of their size, to connect to SWIFT, with a choice of model and connectivity option to suit most corporates’ business needs. The use of a service bureau or member/concentrator also makes the process less complicated.

As with any project, a certain amount of time is required to assess requirements and then to implement the conclusions. But a move to SWIFT is usually tied up with an ‘umbrella’ project, for example, to streamline or centralise treasury operations or upgrade systems – indeed, a change to SWIFT should not be a decision made in isolation.

It is also worth noting that SWIFT costs are reducing. With message volumes continuing to grow, SWIFT reported (in June 2008) a decrease of 16.2% in the average price of a message over the course of 2007 and at the same time restated its strategic goal to cut the average message price by 50% between 2006 and 2011. In addition, financial institutions, service bureaux and third-party vendors will be eager to position themselves competitively for corporate business.

Of course, deciding whether or not to connect to SWIFT and/or the best solution to use will depend on a corporate’s own set of circumstances and business requirements. Size, global locations, the number of banking relationships, transaction types and volumes, existing systems, the current structure in treasury and strategic plans will all impact on the ultimate decision. It will also be necessary to discuss it with bank relationship managers in order to understand their SWIFT capabilities for corporates as well as with other service providers and vendors to find out what products and services they provide.

The potential benefits offered by SWIFT for Corporates are already being realised by numerous corporates. Figures reported by SWIFT (Annual Report 2007) state that 282 corporates and 622 financial institutions had registered for SWIFT for Corporates, with ‘early adopters’ recording a return on investment of between 120 – 400 percent. This growth in users on SWIFT for Corporates is set to continue as more organisations begin to understand the service and the opportunities it offers them as well as gain confidence in its potential as a communication solution.

The word ‘commodity’ is increasingly being applied to the bank-to-corporate communication channel of the future, where connection to SWIFT will be viewed as a given.

Potential benefits of SWIFT for Corporates

Corporates will need to decide whether the following potential benefits outweigh the costs involved:

  • A secure and reliable way to exchange information with financial institutions.

  • A single interface for communicating with multiple banking relationships.

  • Independence from bank proprietary connections.

  • A global standard accepted by all SWIFT member banks.

  • Greater automation and STP along the financial supply chain.

  • Timely delivery of information, resulting in more accurate, speedy and efficient financial decisions.

  • Supports centralisation initiatives, creating greater visibility and control over cash flow.

  • Supports compliance requirements with relevant regulations and principles of good practice, such as the US Sarbanes-Oxley Act and the UK Combined Code on Corporate Governance.