In recent weeks, European sanctions have forced Russian banks to disconnect from the SWIFT system.
Thus, the latest sanctions package of the European Union included the disconnection from the SWIFT system of Sberbank, Moscow Credit Bank and Rosselkhozbank from June 14. And from June 16, Tinkoff introduced new conditions for SWIFT transfers: the minimum transfer amount is $20,000, the commission is 3% of the transfer amount, but not less than 200 USD. e. and not more than the amount of the transfer.
We understand what SWIFT is and how it works.
What is SWIFT
First, let’s figure out what kind of system it is.
Society for Worldwide Interbank Financial Telecommunications (SWIFT) – an international system for the transmission of financial messages between banks. For example, banks send money transfer orders through it.
Only payment documents pass through SWIFT, not money. It ensures the security and reliability of the communication channel between financial institutions.
In simple terms, this system is similar to e-mail correspondence. Only here banks communicate through separate channels, sending important information about transfers.
What information is indicated in SWIFT transfers
The transfer in the system is made on the basis of an instruction that contains the following information: the SWIFT code of the beneficiary bank (a unique identifier of the system participant), the name of the beneficiary bank and details of its branch where the money should be received, the beneficiary’s account number in the global IBAN format, the name of the end recipient (full name of the person or name of the organization) and the number of his bank account, as well as the details of the intermediary bank.
IBAN is the international beneficiary bank code. It encodes important information for banks:
• first two letters: country code
• the following two: a check number to verify the authenticity of the account and to protect information from errors when entering data
• the following four: the first four characters of the BIC identification code (bank identification number)
Who uses SWIFT
Initially, the SWIFT system included 248 banks from 19 countries, now it includes more than 10 thousand financial institutions from more than 200 countries. SWIFT transfers, in particular, are used by:
• individuals
• private companies
• brokers
• trading exchanges
How SWIFT works
To conclude a transaction or make a payment, a financial institution creates a message with certain information. It is sent to the confidential SWIFT network through the terminal.
The terminal communicates with the computer to send and receive such messages. After that, the information is sent to the operations center. The counterparty receives the document, decrypts it and checks its correctness. After that, it determines the further fate of the message: either it is transmitted to the recipients, or returned to the senders if there are errors. Banks charge a fee for each message sent.
If you explain on the fingers, it looks like this:
one. Pavel informs his bank A in the order that he wants to make a transfer. The amount is debited from Ivan’s bank account and bank A credits it to the correspondent account of beneficiary bank B
2. Bank A sends an encrypted message to Bank B via SWIFT stating that $1,000 has been credited to its correspondent account. At the same time, a note follows that the money should go to Alexey’s account
3. Bank B checks the message. From it, he receives all the details and sends this money to the recipient. If the message is composed with errors, for example, the name of the payee is misspelled (Alexei instead of Alexey), the message will be returned to the sender’s bank for revision
four. After making sure that the data received is correct, Bank B transfers $1,000 from its correspondent account to Alexey’s personal account
approx. a correspondent account is an account of bank A opened with bank B. For example, Sberbank in Bank of America
Money can be transferred both with opening an account in both banks, and without. However, the first option is preferred for frequent transfers as it is faster and cheaper.
How SWIFT works in Russia
Currencies transferred via SWIFT vary by bank. In Russia, the transaction fee is paid by sender.
Fees vary from 1% to 1.5% per dollar service depending on the financial institution. The minimum transfer time is one day, the maximum is a week.
SWIFT participants are divided into two zones: European and transatlantic. Banks of the latter are serviced in the USA. The European Messaging Area receives services in the Netherlands. This makes it easier to parse outgoing messages and not overload communication channels.
If the bank is located in a neutral territory, then it makes an independent decision about in which zone to receive the service.
If Russia is cut off from SWIFT, then what?
As we said earlier, It will not affect operations within the country in any way..
In 2014, Russia created its own Financial Message Transmission System (SPFS). It allows you to exchange documents between banks on Russian operations. In case of disconnection from SWIFT, Russian banks will switch to SPFS. For domestic customers, there will be no difference.
How note Vedomosti, with a complete disconnection from SWIFT, Russian banks will have to look for workarounds. For example, there is an alternative – to use bridge banks (third party). This is more complicated and takes more time to complete the payment.
The sanctions bank will only be able to communicate with banks in countries that do not support sanctions, and only if the sanctions do not apply to third-party banks working with Russia.
As Ekaterina Orlova, head of legal practice at CM Grace Consulting, said, with the total disconnection of all Russian banks from SWIFT, this is “not a paralysis of the banking system, but serious difficulties for it.” One way or another, it will be able to function further, but already harder than before.
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In recent weeks, European sanctions have forced Russian banks to disconnect from the SWIFT system. Thus, the latest sanctions package of the European Union included the disconnection from the SWIFT system of Sberbank, Moscow Credit Bank and Rosselkhozbank from June 14. And from June 16, Tinkoff introduced new conditions for SWIFT transfers: the minimum transfer amount is $20,000, the commission is 3% of the transfer amount, but no…
Artyom Bausov
@Dralker
Head of news, clickbait and typos. I love electrical engineering and do fire magic. Telegram: @TemaBausov
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The post How SWIFT transfers work in Russia and the world. What threatens to shutdown appeared first on Gamingsym.