Everything You Need to Know About the SWIFT Payment System
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After Russia’s strike on Ukraine, the EU and US have declared measures to block certain Russian banks from the SWIFT payments system. Russian banks may face difficulties in communicating with international peers without access to SWIFT, in turn, which may slow down trade and result in making transactions costlier. Russian firms and individuals may face difficulties making payments for imports; receiving cash for exports or investments overseas could get more challenging.

Russia developed a substitute to SWIFT known as the System for Transfer of Financial Messages (SPFS) in 2014. However, this system has grappled with proving itself in international transactions.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) renders the best financial messaging services worldwide. It aids cross-border payments across 11,000 financial institutions in more than 200 countries worth trillions of dollars. Each member has a unique SWIFT code. Daily, about 40 million+ financial messages are exchanged via the SWIFT platform.

SWIFT was established in 1973 by 239 banks and 15 countries. It is headquartered in Belgium. In 1977, SWIFT went live with its messaging services as a substitute to Telex technology, which banks widely used back then to communicate information concerned to cross-border transfers. The SWIFT Standards group has various important message standards.

SWIFT, owned and managed by its shareholders, constitutes about 3,500 financial institutions worldwide. It is a cooperative society under Belgian law. The shareholders will appoint a board comprising 25 independent directors representing banks worldwide. This board will be in charge of the company and supervise its management.

SWIFT shareholding allocations and the count of board directors each nation qualifies to have is determined based on every nation’s usage of SWIFT’s messaging service. SWIFT is a messaging service provider only. It does not control the underlying financial transactions indicated by its customers via their messages. 

Standardised messages and reference data aids in keeping the information exchanged between institutions confidential and machine-friendly. They facilitate automation, reduce costs, and help in risk mitigation. With the help of SWIFT, custodians, banks, central banks, investment institutions, corporate clients, and market infrastructures can connect for exchanging structured electronic messages related to business processes such as settling trades or making payments.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in.

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