The SWIFT messaging system, which enables international banking transfers, is set to make changes so it is faster and safer. Here’s what you need to know.

 
The Society for Worldwide Interbank Financial Telecommunications, known as SWIFT, is the global messaging system for financial transfers. It has more than 11,000 member institutions servicing more than 200 countries – last year alone it facilitated more than 6.5 billion transfers. But critical changes in its operations to come into effect by 2020 mean financial institutions need to start preparing now in order to comply on time.

Automation

The 2020 SWIFT changes remove free text lines in the transfer messaging system to improve the data quality of payments.

This data is of huge concern to both regulators and the financial services industry: banks analyse their global SWIFT message traffic to identify unusual trends, hidden relationships and levels of activity with high-risk countries and territories. This then enables them to take sufficient measures to ensure they are not knowingly abetting money laundering or the financing of terrorism.

However, as SWIFT noted in a release in April 2017, “many financial institutions currently make heavy use of free format fields to exchange payer and beneficiary data. Although convenient, this can lead to incomplete data and make it difficult for data to be reliably screened.”

“In anticipation of the new structured formats,” SWIFT added, “all institutions must ensure that payment data is complete, accurate and up to date. For some institutions, this will require significant data remediation work. Many system interfaces will also have to be adapted to capture the necessary information.” 

Changes afoot

“Security is critical, and the 2020 release establishes much stricter protocols,” says EY’s Oceania banking and capital markets leader, Tim Dring. “With the current system, there’s also a fair chunk – around 20 per cent – of transactions that have to be processed with manual intervention.

“Strengthening this part of the system will hopefully see many more transactions processed automatically. The aim of the change is to increase security and also enable banks to reduce their processing costs by automating processes.”

EY warns Australian financial institutions that preparation is crucial, as the SWIFT implementation comes at a busy time in the payments sector. Banks will need to develop a broad range of security protocols, as well as prepare attestations that these have been made operational.

In the meantime, the long-awaited New Payments Platform (NPP) is about to be rolled out, and traditional banks are still coming to terms with digital innovations such as Apple Pay.

Treasury also announced in May 2017 that it is looking at introducing an open banking system that will involve greater sharing of data between banks, consumers, and third parties.

Cyber security

Why has payment data quality become such a concern in the global banking industry? “There are two parts to it: the cyber-attack element is strong, and the level of architecture that sits over this probably doesn’t get the same level of security as other core elements,” Dring says. “But no doubt there is increased attention by regulators around the world in terms of anti-money laundering and counter-terrorism financing.”

Dring also notes there is a focus on strengthening customer security protocols within member institutions to combat the prevalence of cyber-security crimes across the board. While Australian banks generally have fairly robust systems in place, “they are only as strong as the weakest link in the international network”, he says.

Emerging technologies

With payment technologies rapidly evolving, there is a risk that SWIFT’s dominance may be challenged, although Dring says the system will be around for a long time yet, and financial institutions must ensure they are compliant with the changes.

“There’s always a risk of processes being susceptible to emerging technologies, but I think we’re still a long way off reaching a point where those technologies are embedded,” he says. “Besides, disruption will only present new challenges and risks in the same areas.”
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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