• The leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada, and the United States have announced further sanctions on Russia for its invasion of Ukraine, including cutting off a number of Russian banks from the SWIFT interbank payments system.

• The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the world’s main banking messaging service which links around 11,000 banks and institutions in more than 200 countries, including India.

• In India, the SWIFT messaging standards are used for all cross-border payment transactions.

• Based in Belgium, the system is considered central to the smooth functioning of global finances and Russia’s exclusion from it would hit the country hard.

• The West decided to expel selected Russian banks from the SWIFT financial messaging system and impose restrictive measures on its central bank to limit Moscow’s ability to access its overseas reserves.

• Removing banks from SWIFT is deemed to be a severe curb because almost all banks use the system. Russia is heavily reliant on the SWIFT system for its key oil and gas exports.

• Western nations had threatened to exclude Russia from SWIFT in 2014 following its annexation of Crimea.

Evolution of SWIFT system

• In 1973, as many as 239 banks from 15 countries got together to solve a common problem: how to communicate about cross-border payments. 

• The banks formed a cooperative utility — the Society for Worldwide Interbank Financial Telecommunication — headquartered in Belgium. 

• SWIFT went live with its messaging services in 1977, replacing the Telex technology that was then in widespread use, and rapidly became the reliable, trusted global partner for institutions all around the world. 

• The main components of the original services included a messaging platform, a computer system to validate and route messages, and a set of message standards. 

• The standards were developed to allow for a common understanding of the data across linguistic and systems boundaries and to permit the seamless, automated transmission, receipt and processing of communications exchanged between users.

• Banks use the SWIFT system to send standardised messages about transfers of sums between themselves, transfers of sums for clients, and buy and sell orders for assets.

• Banks which connect to the SWIFT system and establish relationships with other banks can use SWIFT messages to make payments. The messages are secure so that payment instructions are typically honoured without question. This allows banks to process high volumes of transactions at speed.

• Each year, trillions of dollars are transferred using the system.

• SWIFT is now a global financial infrastructure that spans every continent, over 200 countries and territories, and services more than 11,000 institutions around the world.

• FIN enables financial institutions to exchange individual structured (Message Type and ISO 15022 message formats) financial messages securely and reliably. FIN is used by financial institutions and their corporate customers worldwide to exchange messages across a wide range of business areas within the banking and securities industries.

• An average of 42 million payments and securities transactions were processed using our FIN message service per day in 2021, underscoring SWIFT as the platform of choice for financial institutions worldwide.

• The National Bank of Belgium (NBB) acts as the lead overseer, and is supported by the G-10 central banks. The oversight primarily focuses on ensuring that SWIFT has effective controls and processes to avoid posing a risk to the financial stability and the soundness of financial infrastructures.

• SWIFT shareholders elect a Board composed of 25 independent directors which governs the Company and oversees management.

• While SWIFT does not hold funds or manage accounts on behalf of customers, it enables users to communicate securely, exchanging standardised financial messages in a reliable way, thereby supporting global and local financial flows, as well as trade and commerce all around the world.

• The products and services support community’s access and integration, business intelligence, reference data and financial crime compliance needs. 

How will the move affect Russia?

• Excluding Russian banks from SWIFT restricts the country’s access to financial markets across the world. Russian companies and individuals will find it harder to pay for imports and receive cash for exports, borrow or invest overseas.

• Russian banks could use other channels for payments such as phones, messaging apps or email. That would let Russian banks make payments via banks in countries which have not imposed sanctions but since alternatives are likely to be less efficient and secure, transaction volumes could fall and costs rise.

• Exporters would find selling goods to Russia riskier and more expensive. Russia is a big buyer of manufactured goods. 

• Foreign buyers of Russian goods would also find it more difficult, potentially prompting them to seek alternative suppliers. 

• When it comes to Russian oil and gas, foreign buyers could find it harder to find replacement suppliers. Russia is the main EU supplier of crude oil, natural gas and solid fossil fuels. 

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