IBPS Test 20

The Society for Worldwide Interbank Financial Telecommunication, universally known by its acronym SWIFT, provides the global messaging infrastructure that enables financial institutions to communicate securely and standardise financial transactions across international borders. Founded in 1973 and headquartered in Belgium, SWIFT operates a cooperative society owned by its member financial institutions and used by thousands of banks, securities firms, exchanges, and corporate treasuries in over two hundred countries and territories. SWIFT does not hold or transfer funds itself but provides a highly secure, reliable, and standardised messaging platform through which banks instruct each other regarding payment orders, securities transfers, trade finance transactions, and treasury operations. The importance of SWIFT in international finance is difficult to overstate — it carries millions of high-value financial messages daily and its disruption would significantly impair the ability of banks to process cross-border payments. Correspondent banking, which underpins the majority of cross-border payments in the global financial system, relies heavily on SWIFT messaging. Under the correspondent banking model, a bank maintains accounts, called nostro accounts, with banks in other countries, and when a customer requests an international payment, the sending bank transmits a SWIFT message to its correspondent in the destination country instructing it to credit the beneficiary's account. This chain of correspondent relationships allows even small banks in developing countries to facilitate international payments for their customers without needing direct relationships with banks in every country. The de-risking phenomenon, where large global correspondent banks have exited relationships with smaller banks in certain jurisdictions due to concerns about anti-money laundering compliance costs and regulatory risks, has disrupted correspondent banking availability for financial institutions in some developing countries. India's significant trade and diaspora remittance flows make correspondent banking relationships and SWIFT access critical for the country's financial sector. The SWIFT network was the subject of a series of cyber heists in 2016, most notably the Bangladesh Bank heist where attackers used fraudulent SWIFT messages to steal approximately eighty-one million dollars from Bangladesh's central bank account at the Federal Reserve Bank of New York. This incident prompted SWIFT to strengthen its security requirements for member institutions through the Customer Security Programme. The development of alternative cross-border payment rails, including central bank digital currencies, blockchain-based payment networks, and bilateral real-time payment linkages between countries, represents potential long-term challenges to SWIFT's dominant position, though the established institution has also been modernising its own messaging standards and exploring integration with new technologies.