Society for Worldwide Interbank Financial Telecommunication (SWIFT)

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Context: 

Half
a dozen public and private sector banks have been slapped with monetary penalties
by the Reserve Bank of India for non-compliance of directions in the Swift (Society for
Worldwide Interbank Financial Telecommunications) messaging system used
by banks worldwide for foreign currency transfers.

What is SWIFT?

It
is a messaging network that
financial institutions use to securely transmit information and instructions
through a standardized system of codes
. Under SWIFT, each financial
organization has a unique code which is used to send and receive payments.

  • SWIFT
    does not facilitate funds transfer:
     rather,
    it sends payment orders, which must be settled by correspondent accounts
    that the institutions have with each other.
  • The
    SWIFT is a secure financial message carrier —
     in
    other words, it transports messages from one bank to its intended bank
    recipient.
  • Its
    core role is to provide a secure transmission channel
     so
    that Bank A knows that its message to Bank B goes to Bank B and no one
    else. Bank B, in turn, knows that Bank A, and no one other than Bank A,
    sent, read or altered the message en route. Banks, of course, need to have
    checks in place before actually sending messages.

SWIFT India is a joint venture of top Indian public
and private sector banks and SWIFT (Society for Worldwide Interbank Financial
Telecommunication)
. The company was created to deliver
high quality domestic financial messaging services to the Indian financial
community. It has a huge potential to contribute significantly to the financial
community in many domains.

 Significance of SWIFT:

  • Messages sent by SWIFT’s customers
    are authenticated using its specialised security and identification
    technology.
  • Encryption is added as the
    messages leave the customer environment and enter the SWIFT Environment.

Messages remain in the protected SWIFT
environment, subject to all its confidentiality and integrity commitments,
throughout the transmission process while they are transmitted to the operating
centres (OPCs) where they are processed — until they are safely delivered to
the receiver.

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