SWIFT

SWIFT

   SWIFT HISTORY

• Increase in International trade and commerce after World War-II 
• Efficient Banking System for payment mechanism with Security, Reliability and Confidentiality was needed. 
• Computer and Telecommunication technology came to rescue. 
•  Co-operative organization SWIFT was born 
•  SWIFT is the industry-owned co-operative 
•  Established in 1973 
•  Head quarters at Brussels Belgium 
• Common language for international financial transactions 
• Secure, Standardised messaging services 
• Provides interface software

SWIFT USAGES

• Payments 
•  Securities 
•  Treasury 
•  Trade 
• SWIFT in figures

Why SWIFT

• Advantages of SWIFT

>  It is Highly Secured 

>   It is Highly Reliable

> It is very cost effective

>  It is Standardized - accepted globally

>  It is a STANDARD SETTER

                              > Offer standardized web based trust service and e-payments to corporate 
                                 customers active in B2B E-commerce

Disadvantages of TELEX

> Insecure Transaction

> Slower transmission

> Susceptible to transmission errors

> Expensive

>  Most transacting Bank is a SWIFT user and not having test key arrangement for TELEX

System Control Processor

> Controls the entire Network

> Organizing Recovery of the Network

> Responsible for introduction of New Software online

>  Two SCP center on SWIFT Network

1.       U.S.A

2.       Netherlands

SECURITY

SWIFT Security objectives

CONFIDENTIALITY

1.       Information is disclosed to authorized persons at authorized location only

INTEGRITY

1.       Information can be RELIED upon ABSOLUTE, ACCURATE and VALID.

AVAILABILITY

1.       Information and the associated services is accessible and usable when needed

ACCOUNTABILITY

1.       Every individual authorized to use the system is accountable

SWIFT SECURITY

> Key Authentication Mechanism

> Encryption

> Checksum

SWIFT BANK IDENTIFICATION CODE (BIC)

BIC stands for Bank Identifier Codes

It is the unique identification code of a particular Bank / Branch

SWIFT handles the registration of these codes

The code is 8 or 11 characters

·         4 characters - bank code

·         2 characters - country code

·         2 characters - location code

·         3 characters - branch code, optional ( 'XXX' for primary office)

Where an 8-digit code is given, you may assume that it refers to the primary office.

BIC is often called SWIFT addresses or code

Examples of BIC

  BIC ICICINBB  is for ICICI Bank, Mumbai

 ICIC  identifies  ICICI Bank

  IN     identifies country code for India

  BB    identifies Code for Mumbai

  BIC ICICINBB011  is for ICICI Bank, Andheri

  011   identifies Code for Andheri Branch

BKE/ AUTHENTICTY MESSAGE

BKE stand for Bilateral Key Exchange

BKE is an essential part of the security of the S.W.I.F.T.  network.

Exchanges secret bilateral authentication keys

Automatically generates code while sending

It also decodes and confirm while receiving

Once BKE relation established within 2 banks they can send and receive authenticated messages between them.

If No BKE present then only MT 999 can be exchanged   (MT 999 Free format Unauthenticated Message) 

 

BENEFIT BKE

Automatically verifies the authenticity of message

Smooth process without human intervention

Cost saved for processing

Processing time reduced

SWIFT MESSAGE

It is a written communication in a structured format

It is not a file

No Attachments can be sent

Message types (MT)‏

  

SWIFT message as identified by 3 digit number

    Each MT have diff Structure / Use

Message categories   series of MTs relating to a particular class of transaction, as indicated by the first digit of the MT number.

Message Blocks Header, Text , Trailer

SWIFT MESSAGES BLOCKS

Header:

    Contains control information

     Addressee, processing, priority and security.

Text

    Contains the substance of the message.

     format and structure varies according to the MT

   Trailer

     For control purposes, CHK Trailer, PDE Trailer

Category	Details
1	Customer payments and cheques
2	Financial institution transfers
3	Treasury Markets-FX, Money Markets and Derivatives
4	Collection and cash letters
5	Securities Markets
6	Treasury Market- Precious Metals/ Syndications
7	Documentary Credits and Guarantees
8	Travellers Cheques
9	Cash Managements and Customers Status

Structured / Free Format Message

> X99 in each category are free format message

                (799 is free format message for LC/BG)‏

> All other are structured MTs

 > Structured as per Type and use of Message

> Except 999 all other free format MTs are authenticated

MT 110 Scope

>  Advise of Cheque(s)‏

> Sent by a drawer bank, or a bank acting on behalf of the drawer bank to the drawee bank

>  It is used to advise the drawee bank, or confirm to an enquiring bank, the details concerning the cheque(s) referred to in the message

MT 111 Scope

> Request for Stop Payment of a Cheque

> This single message type is sent by a drawer bank, or a bank acting on behalf of the drawer bank, to the drawee bank

l  MT 111 FORMAT

NOSTRO A/C:

The account which is maintained in abroad for settlement of receipts and payment regarding foreign exchange transactions is called Nostro  Accoount. In brief, our account with them is called Nosrto Account.

VOSTRO A/C:

The account which is maintained in our country for settlement of receipts and payment regarding foreign exchange transactions is called Vostro Account. In brief, their account with us is called Vostro Account.

LORO A/C:

The account of third party maintained in domestic or Foreign Currency is called LORO Account.

FLOW OF PAYMENT

STOP PAYMENT

 Currency Clearing House Process

Funds transferred without any repair

No human intervention

Low cost

Real time payments

ROAD TO STP

Nostro and Currency must match

Ben bank correspondent SWIFT BIC

Ben bank SWIFT BIC or A/c No. with Correspondence

Beneficiary Full A/c No. given

Beneficiary Correct Name Given

Swift structure is strictly followed

Collection MT4xx messages

MT400 : Advice of Payment

MT410 : Acknowledgement

MT412 : Advice of Acceptance

MT 499 : Authenticated free format message for documents sent under collection basis.

Stages in LC Backed Trade

Swift for Documentary Credit

Below MTs are used for DC

MT 734 Scope

> This message is sent by the issuing bank to the bank from which it has received documents related to a documentary credit. It may also be sent by the bank nominated to pay/accept/negotiate/incur a deferred payment undertaking to the bank from which it has received documents.

>  It is used to advise the Receiver that the Sender considers the documents, as they appear on their face, not to be in accordance with the terms and conditions of the credit and that, consequently, it refuses them for the discrepancies stated. The Sender also states that it is holding the documents at the disposal of, or returning them to the Receiver.

MT 740 Scope

>  This message is sent by the issuing bank to the reimbursing bank.

>  It is used to request the Receiver to honour claims for reimbursement of payment(s) or negotiation(s) under a documentary credit.

> The MT 740 authorises the reimbursing bank to debit the account of the Sender, or one of the Sender's branches if so indicated, for reimbursements effected in accordance with the instructions in the MT 740.

MT 742 Scope

> This message is sent by the paying/negotiating bank to the bank authorised to reimburse the Sender for its payments/negotiations.

> It is used to claim reimbursement of payment(s) or negotiation(s) under a documentary credit, as relevant to the reimbursing bank.

Reimbursement Payment

MT 747 Scope

>  It is an ammendment to MT740. This message is sent by the bank which has issued an authorisation to reimburse (issuing bank) to the reimbursing bank.

>  It is used to inform the Receiver about amendments to the terms and conditions of the credit relevant to the authorisation to reimburse.

> The amendment is to be considered as part of the authorisation to reimburse.

MT 754 Advice of Payment/Acceptance/Negotiation

>  This message is sent by the paying, accepting or negotiating bank, or the bank incurring a deferred payment undertaking, to the issuing bank. It may also be sent by the bank to which documents have been presented to a bank that has been nominated to pay/accept.

>  It is used to advise the Receiver that documents were presented in accordance with the credit terms and are being forwarded as instructed.

MT 756 Advice of Reimbursement or Payment

>  This message is sent by the issuing bank to the bank from which it has received documents or by the reimbursing bank to the bank from which it has received a reimbursement claim

>   It is used to advise the Receiver about reimbursement or payment, to that bank, for a drawing under a documentary credit for which no specific reimbursement instructions or payment provisions were provided.

MT 799 Free Format Message

These are authenticated free format messages typically used for L/c and BG cases.

Any messages to be sent under L/C/ BG which are general in nature, or which is used to convey a discrepancy, a MT799 can be sent.

Swift for Bank Guarantees

Below MTs are used for BG

MT	Purpose
760	Issue or request the issue of BG
767	Amendment of BG
768	Acknowledgement of a BG Message
769	Advice of Reduction or Release

MT 760 Guarantee Format Specifications

Status	Tag	Field Name
M	27	Sequence of Total
M	20	Transactions of Reference Number
M	23	Further Identification
O	30	Date
M	40C	Applicable Rules
M	77C	Details of guarantee
O	72	Sender to Receiver information

MT 700 LC Format Specifications

Status	Tag	Field Name
M	27	Sequence of Total
M	40A	Form of Documentary Credit
M	20	D/C Number
M	31C	Date of Issue
M	40E	Applicable Rules
M	31D	Date and Place of Expiry
M	50	Applicant
M	59	Beneficiary
M	32B	Currency Code , Amount
M	39C	Additional Amount Covered
M	41D	Available with…
M	42C	Drafts at….
M	42D	Drawee Bank – Name & Address
M	43P	Partial Shipments
M	43T	Transhipment
M	44E	Port of Loading / Airport of Dep.
M	44F	Port of Discharge / Airport of Desti.
M	44C	Latest Date of Shipment
M	45A	Description of Goods / Services
M	46A	Documents Required
M	47A	Additional Conditions
M	71B	Charges
M	48	Period of Presentation
M	49	Confirmation Instructions
M	53A	Reimbursing Bank
M	78	Instruction to Pay/Acceptance/ Negotiating Bank