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# What is SWIFT in Banking

Edmund Wise
4/9/2023
11
mins

The Society for Worldwide Interbank Financial Telecommunications, commonly known as SWIFT, is a global messaging network that facilitates secure and standardised communication between banks.

Founded in Brussels in 1973, SWIFT has become a critical part of the global financial system, enabling more than 11,000 banks and financial institutions in over 200 countries and territories to exchange messages and execute international transactions securely and efficiently. In this article, we will explore the history, function, and impact of SWIFT, and examine its role in facilitating international payments and combating financial crime.

## History of SWIFT

SWIFT was established in 1973 as a member-owned cooperative society owned by 239 banks from 15 countries that saw a need for a secure and reliable messaging system to facilitate international financial transactions. The system was initially based on telex technology, which enabled banks to communicate with each other by sending messages using a standardised messaging format.

### Expansion of services and network

Over the years, SWIFT has expanded its services and network to meet the changing needs of the financial industry. In the 1980s, it introduced computer-based messaging and began offering new services, such as automated funds transfer and securities trading. The network grew rapidly. By the end of the decade, SWIFT had more than 3,000 member banks.

In the 1990s, SWIFT continued to expand its services, adding new messaging formats and protocols for different types of financial transactions. It also began to offer messaging services to non-banking financial institutions, such as asset managers and securities firms. The network grew to include over 7,000 member financial institutions and institutions.

### Recent developments

In recent years, SWIFT has focused on improving the speed and efficiency of its messaging system. In 2017, it launched a new service called SWIFT gpi (global payments innovation), which enables banks to send money and process cross-border payments in real-time or near real-time. This has greatly reduced the time and cost of international payments, making them faster and more transparent.

SWIFT has also stepped up its efforts to combat financial crime, introducing new tools and services to help its members comply with anti-money laundering and counter-terrorism financing regulations. In 2020, it launched a new service called SWIFT KYC (know your customer), which enables banks to share and exchange KYC information more efficiently and securely.

Overall, SWIFT’s history is one of continuous evolution and innovation, driven by the needs of its member institutions and the changing landscape of the financial industry. Its ongoing efforts to improve its messaging system and enhance its compliance services demonstrate its commitment to remaining a trusted and indispensable part of the global financial system.

## How SWIFT works

### SWIFT messaging system

SWIFT’s global financial messaging system is based on a standardised messaging format that enables banks and financial institutions to take financial messages and communicate with each other in a secure and reliable manner. The system uses a unique messaging code for each financial transaction, which includes information about the sender, the recipient, and the nature of the transaction.

### Network of member banks and financial institutions

The SWIFT messaging network comprises more than 11,000 member banks, credit unions, investment firms, and other financial service providers in over 200 countries. These institutions connect to the SWIFT network through a secure, dedicated communication line or through the Internet. Once connected to the SWIFT message system, they can exchange messages and execute transactions with other members of the network.

### Security measures

SWIFT takes security very seriously and employs a range of measures to protect its messaging system and the transactions that pass through it. These include encryption, digital signatures, and authentication protocols. SWIFT also offers its members a range of security tools and services, such as two-factor authentication, intrusion detection, and anti-virus protection.

## SWIFT in international payments

### Role of SWIFT in facilitating cross-border payments

SWIFT plays a crucial role in facilitating cross-border payments between banks and financial institutions. It provides a secure and standardised messaging system that enables intermediary banks to exchange payment instructions and confirmations with each other.

Through its network, SWIFT connects banks around the world, making it possible to transfer funds between different currencies and countries from one bank account to another.

### SWIFT messaging formats for payment transactions

SWIFT system has developed a number of messaging formats for different types of payment transactions, such as MT103 for single-customer credit transfers and MT202 for bank-to-bank transfers. These messaging formats include standardised fields for important payment information, such as the beneficiary’s name and bank account number, the amount of the payment, and the currency.

### SWIFT payment processing timeline

SWIFT payment processing typically takes a few days to complete, depending on the banks involved and the countries and currencies involved in the transaction. The payment process typically involves several steps, including payment initiation, payment validation, payment processing swift transaction amount, and payment settlement. SWIFT gpi has helped to reduce the time and cost of international payments, enabling some payments to be settled in real-time or near real-time.

## SWIFT in financial crime compliance

SWIFT offers a range of compliance solutions and services to help its members comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. These solutions include tools for screening transactions and customers, as well as services for sharing and exchanging KYC information.

### SWIFT’s role in fighting financial crime

As a trusted and central part of the global financial system, the SWIFT network has a crucial role to play in fighting financial crime. It has developed a range of tools and services to help its members identify and prevent financial crime, including transaction monitoring, sanctions screening, and fraud detection.

### Recent developments in SWIFT’s compliance services

In recent years, SWIFT has introduced new compliance services and tools, such as SWIFT KYC, which enables banks to share and exchange KYC information more efficiently and securely. It has also partnered with other organisations, such as the Wolfsberg Group and the Financial Action Task Force, to develop best practices and standards for AML and CTF compliance.

## SWIFT’s challenges and criticisms

SWIFT has faced criticism over its transparency and accountability, with some commentators arguing that it is too opaque and difficult to hold accountable. There have also been concerns about its governance structure, which is controlled by its member banks.

SWIFT has responded to these criticisms by increasing its transparency and accountability. It has established a new oversight body, the SWIFT Board, which is responsible for setting strategic direction and overseeing management. It has also made efforts to increase its engagement with stakeholders and improve its communication and reporting.

### SWIFT’s competition and challenges from emerging technologies

SWIFT faces competition from emerging technologies, such as blockchain and distributed ledger technology, which offer new and potentially disruptive ways of facilitating cross-border payments. SWIFT has responded by exploring these technologies and developing new services, such as SWIFT gpi, which enable faster and more transparent cross-border payments.

## FAQs about the SWIFT system

### What exactly does SWIFT do?

The SWIFT network acts as a neutral third party that facilitates the exchange of information between banks and financial institutions. It does not hold funds or manage accounts on behalf of its members, nor does it have the authority to initiate or approve transactions. Instead, it provides the infrastructure and messaging system that allows banks and financial institutions to communicate and execute transactions with each other securely and efficiently.

### What is SWIFT banking?

SWIFT banking refers to the use of SWIFT’s messaging system by banks and other financial institutions to communicate and execute financial transactions with each other securely and efficiently.

Banks and financial institutions use SWIFT’s messaging system to exchange information about financial transactions from one bank account to another, such as payments, securities trades, and foreign exchange trades. SWIFT acts as a neutral third party that facilitates the exchange of information between banks and financial institutions, ensuring that the information is transmitted securely and efficiently.

### Which country owns the SWIFT system?

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is not owned by any country. It is a cooperative society headquartered in Belgium and governed by a board of directors composed of representatives from its members.

The SWIFT network was established in 1973 as a cooperative society under Belgian law, with the aim of creating a secure and efficient messaging system for banks and financial institutions to communicate and execute transactions with each other. Today, SWIFT has over 11,000 members in more than 200 countries and territories around the world.

While SWIFT is not owned by any country, it is subject to the laws and regulations of the countries in which it operates. It is also subject to the oversight of regulatory authorities, such as central banks and financial supervisory authorities.

### What is a SWIFT code?

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A SWIFT code is a unique identification code, a bank identifier code that helps identify banks and financial institutions worldwide. It is a unique code widely recognised as an international standard for identifying banks and financial institutions, specifically for cross-border transactions such as international wire transfers. The SWIFT code is also referred to as a Bank Identifier Code (BIC) and plays a critical role in ensuring that funds are transferred to the correct bank or financial institution, including its specific branch, in a timely and secure manner.

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### How do I find my SWIFT code?

At Goldfortx we have a ﻿﻿SWIFT code finder﻿﻿﻿﻿ tool just for you. Find your SWIFT by bank or location.

## Conclusion

The Society for Worldwide Interbank Financial Telecommunications is a central and indispensable part of the global financial system, providing a secure and reliable messaging system that enables banks and financial institutions to communicate and execute transactions with each other. It has played a key role in facilitating international payments from one bank account to another and fighting financial crime.

SWIFT’s future prospects and developments are closely tied to the changing landscape of the financial industry. It will need to continue to innovate and adapt to new technologies and customer needs to remain relevant and effective.

Overall, SWIFT’s role in the global financial system is essential and will continue to be so in the years ahead. Its ongoing efforts to improve its messaging system and enhance its compliance services demonstrate its commitment to remaining a trusted and indispensable part of the financial industry.

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