Half a dozen public and private sector banks have been slapped with monetary penalties by the Reserve Bank of India for non-compliance of directions in the Swift (Society for Worldwide Interbank Financial Telecommunications) messaging system used by banks worldwide for foreign currency transfers.
What is SWIFT?
It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. Under SWIFT, each financial organization has a unique code which is used to send and receive payments.
SWIFT does not facilitate funds transfer: rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other.
The SWIFT is a secure financial message carrier — in other words, it transports messages from one bank to its intended bank recipient.
Its core role is to provide a secure transmission channel so that Bank A knows that its message to Bank B goes to Bank B and no one else. Bank B, in turn, knows that Bank A, and no one other than Bank A, sent, read or altered the message en route. Banks, of course, need to have checks in place before actually sending messages.
Facts for Prelims:
SWIFT India is a joint venture of top Indian public and private sector banks and SWIFT (Society for Worldwide Interbank Financial Telecommunication). The company was created to deliver high quality domestic financial messaging services to the Indian financial community. It has a huge potential to contribute significantly to the financial community in many domains.
Significance of SWIFT:
Messages sent by SWIFT’s customers are authenticated using its specialised security and identification technology.
Encryption is added as the messages leave the customer environment and enter the SWIFT Environment.
Messages remain in the protected SWIFT environment, subject to all its confidentiality and integrity commitments, throughout the transmission process while they are transmitted to the operating centres (OPCs) where they are processed — until they are safely delivered to the receiver.