- Recently, the Reserve Bank of India (RBI) has imposed monetary fine on seven banks i.e. Karnataka Bank, United Bank of India, DCB Bank, Karur Vysya Bank Indian Bank ,IOB and United Bank of India for non-compliance of directions on Swift messaging software.
- The PNB fraud case of Rs 14,000 crore of was a case of misuse of SWIFT messsaging software.
- After the PNB fraud, the RBI has been tough on banks to tighten all kind of their transactions.
- In 2018, RBI directed banks on time-bound implementation and strengthening of SWIFT-related operational controls.
- RBI is imposing fines on banks for non-compliance of its directions.
About Society for Worldwide Interbank Financial Telecommunication (SWIFT)
- It was founded in 1973 by a group of 239 banks from 15 countries which formed a co-operative utility to develop a secure electronic messaging service and common standards to facilitate cross-border payments.
- SWIFT is a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions through a standardized system of codes.
- Thus, SWIFT provides a secure transmission channel to the messages between the two financial institutions. However, banks still need to have checks in place before actually sending messages.
- It supplies a standardized language that institutions use to communicate payment instructions and other info to each other.
- SWIFT messages are programmed in a language known as FIN, which is a message type (MT) that transmits financial information from one financial institution to another.
- The SWIFT is a global member-owned cooperative that is headquartered in Brussels, Belgium.
Working of SWIFT
- At first, customers need to connect to the SWIFT environment, which can be done in many ways like:
- Connecting directly through permanent leased lines, the Internet, or SWIFT’s cloud service, or
- Connecting indirectly through appointed partners
- Messages sent by SWIFT’s customers are authenticated using its specialised security and identification technology.
- Messages remain in the protected SWIFT environment throughout the transmission process while they are transmitted to the operating centres (OPCs) where they are processe, until they are safely delivered to the receiver.
- To keep the network safe, the best practices should be applied not only to the SWIFT infrastructure within banks, but the full end-to-end transaction ecosystem within their firms, including payments, securities trade and treasury.