Few in treasury have not heard of SWIFT. It’s a complex beast that some say is run by banks for banks. We go back to basics, picking out the key elements and trying to unravel the mysteries of this global infrastructure.
SWIFT is a global bank-owned provider of secure financial messaging services. SWIFT has only ever been a messaging service: it does not hold funds nor manage accounts on behalf of customers. At its heart is an IP-based closed network infrastructure, known as SWIFTNet. This is a secure messaging environment that uses end-to-end encryption and a Public Key Infrastructure to ensure authenticity, integrity, confidentiality and non-repudiation of every message it handles.
Today, SWIFTNet connects more than 11,000 banking and securities organisations, market infrastructures and corporate customers in almost every country and territory on the planet.
With a claimed availability level of 99.99%, the platform carries standardised messages used, for example, in making payments or confirming trades. SWIFT’s standards group works with users to define all message standards. These not only specify the data elements included in messages but also document the meaning and format of each element. The standards also specify mandatory and optional elements, message order and in some cases the response required by recipients.
Although mostly associated with banks, SWIFT has long courted the corporate community as direct users of its services. Initially this was just the largest companies installing in-house connectivity but now it is pitching services at the midcaps too, having made adoption easier and cheaper.
SWIFTNet incorporates four messaging service variants: FIN, InterAct, FileAct and WebAccess.
FIN enables the exchange, on a message-per-message basis, of a wide range of messages formatted with the traditional SWIFT MT (message type) standards. It also supports the exchange of proprietary formats between market infrastructures and their customers.
This is similar to FIN but it enables the exchange of MX message types that use the more flexible ISO 20022-based XML syntax.
FileAct is all about large batch transfers such as bulk payment files, very large reports or operational data.
WebAccess allows users to browse securely on financial web sites available on SWIFTNet using standard internet technologies and protocols.
Corporates have two main options when seeking to access SWIFT – SCORE and MA-CUG:
The Standardised Corporate Environment (SCORE) has been the main model for corporate participation in SWIFT since 2007. It is a Closed User Group (CUG) administered by SWIFT.
Set up in 2001, 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. Under this model, corporates are required to join a new MA-CUG for each bank with which they wish to communicate.
Methods of access
There are three main routes:
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.
Service bureau (indirect access):
Hosted and maintained by a third party, providing specialist knowledge, full disaster recovery and features such as the conversion of messages to SWIFT format.
Member/concentrator (indirect access):
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.
Connecting to the network
SWIFT’s IP virtual private network (VPN) is the key to user connection to SWIFTNet. 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 connectivity within its ‘Alliance’ suite. This multi-platform interface provides access to FIN, InterAct and FileAct messaging services. The suite includes the interfaces:
A multi-platform interface that enables customers to connect single or multiple destinations to SWIFT with maximum automation of system management tasks.
A messaging interface that SWIFT has developed for low-volume customers that use a single destination.
Alliance Messaging Hub.
A single integration platform for global financial institutions looking to rationalise their messaging infrastructure across networks.
Alliance Gateway is the communication interface connecting to SWIFT via a single point. It aims concentrated message flows for SWIFT users with medium to high messaging volumes via the Alliance Access, Alliance Entry or Alliance Messaging Hub interfaces.
The easiest way to connect to SWIFT is using SWIFT’s cloud-based connectivity solution, Alliance Lite2. It is a smaller upfront investment than direct access but has access to all types of SWIFT messages and files.
Alliance Lite2 for Business Applications (L2BA).
This is a cloud solution, enabling corporates to combine their own SWIFT-ready software – such as cash management solutions, treasury management systems, trade and securities platforms – with SWIFT connectivity in a single package. SWIFT runs a partner programme for providers offering SWIFT services, as well as a ‘SWIFT-ready’ certification (or SWIFT compliance) programme for vendors and their offerings.
Suitable for high traffic volumes, allowing connection to SWIFT via Alliance Access or Alliance Gateway.
SWIFT the product provider
SWIFT is expanding its portfolio of products all the time, mainly to help banks enhance their own transaction banking solutions for corporate clients. These developments focus mainly on the following core areas:
MT940/942 messages are the standard customer statement messages. Where recipients need more information, in a format that suits them, the XML-based ISO 20022 camt (short for cash management) messages signal progress.
Anecdotal evidence suggests that, at the moment, there are few banks that are able to send camt.052 (account reporting), camt.053 (account statement) and camt.054 (credit or debit notification) messages.
Mandate management and user identity
SWIFT’s 3SKey secure digital signatory tool provides an opportunity for the banks to securely authenticate end-users and validate the financial transactions based on individual mandates.
MT798 messaging standards enable banks to support the automation and centralised processing of letters of credit (LC), standby LCs, collections and demand guarantees.
Approved payables financing
SWIFT’s Bank Payment Obligation (BPO) supports trade settlement using ISO 20022 data structures.
SWIFTRef is a global reference data utility providing reliable data sourced directly from its originators in a format compatible with ERP systems. The SWIFTRef platform is used to collect, manage and deliver worldwide payments reference data for use by over 5,500 financial institutions and 500 corporates globally. SWIFTRef data is used to validate and check international and domestic payment operations, as well as supporting regulatory reporting needs.
SWIFT’s KYC Registry provides KYC information for correspondent banks as well as fund distributors and custodians. Banks contribute an agreed ‘baseline’ set of data and documents for validation by SWIFT, which the contributors can then share with their counterparties.
The Payments Data Quality service checks messages using quality verification rules developed by SWIFT in line with industry practice and in cooperation with its community.
MyStandards is a collaborative web application used to manage standards definitions and industry usage. It includes the MyStandards Usage Guideline Editor, an offline application that allows users to define and maintain their own usage guidelines.
The MyStandards Readiness Portal is an online, self-service function intended to ease the client on-boarding process for financial institutions and their customers. Even with global messaging standards, each bank’s format will differ slightly. When a corporate wants to connect with a specific bank, these small differences slow the process. When testing a message against a bank specification, any errors or mismatches will generate a response that describes what is wrong. The user will then be directed to the relevant field definition in MyStandards so that the message can be modified accordingly whilst still online and retested straight away.
Launched in December 2015, the global payments innovation (gpi) initiative is being billed by SWIFT as creating “the next era for correspondent banking”. With more than 90 banks signed up, interest represents more than 75% of SWIFT’s cross-border payments traffic.
Essentially gpi is a new multi-lateral service agreement. It is designed to offer corporates the ability to make payments with same-day value, obtain transparency over fees, increase certainty by offering end-to-end payments tracking, and ensure that remittance information is transferred unaltered.
But there is a roadmap for services under gpi, including the ability for corporates to request payments through the SWIFT network and the capability for banks to stop payments where a sender has made an error. This requires some supplementary technology.
In July 2017, SWIFT announced that 22 additional global banks had joined its gpi blockchain proof of concept (POC). The PoC aims to validate whether the technology can help banks monitor, manage and reconcile their international nostro accounts in real time.
Currently, real time monitoring is not possible due to lack of intraday reporting coverage. Monitoring the funds in their overseas accounts is done via debit and credit updates and end-of-day statements. This work adds cost to cross-border payments. The PoC will test whether distributed ledgers can help banks reconcile those nostro accounts more efficiently and in real time, lowering costs and operational risk.
This has been a very quick look at SWIFT’s activities. It is complex and, for corporates uncertain as to how to approach it, independent research is essential. Banking partners, technology vendors and service bureaus will all have a view that is worth investigating. The truth is out there.