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Oversight

of payment and securities settlement systems

Photo shows a telescope © Richard Newstead / Getty Images [+] The following pages contain further information about the Bundesbank's tasks relating to the oversight of payment and securities settlement systems.

SWIFT

Introduction

SWIFT (short for Society for Worldwide Interbank Financial Telecommunication) is a provider of global communication services for the exchange of information about financial transactions in a standardised form. S.W.I.F.T. SCRL, a cooperative association under Belgian law, is domiciled in La Hulpe, Belgium, and is 100% owned by its member banks and a number of other financial institutions. The association provides a network that is focused on an extremely high level of security and availability. For this reason, SWIFT is used by a multitude of financial market infrastructures worldwide.
SWIFT itself is merely responsible for transferring messages; it does not offer any form of clearing or settlement services. Thus, for example, SWIFT is not involved in the actual transfer of funds; instead, it merely provides the technical infrastructure and the corresponding message format for transferring messages about financial transactions. Funds are actually transferred via payment systems or correspondent accounts held by participating institutions on behalf of one another.
Over time, SWIFT message formats have established themselves as the industry standard and can be used by all conventional processing systems in the financial industry, even if these systems do not use the communications network operated by SWIFT.
On the one hand, the Bundesbank uses SWIFT as a customer for payment transactions and securities settlement, just as other banks do. On the other hand, the Bundesbank also offers SWIFT as a communication channel for TARGET2 and TARGET2-Securities in its capacity as an infrastructure provider.

Implementation

Given its important role in the financial system and the potential adverse impact of a breakdown in global communication channels between financial market participants, SWIFT is subject to joint oversight by the G 10 central banks and the ECB. The Nationale Bank van België (NBB) coordinates this oversight as lead overseer pursuant to a protocol concluded between itself and SWIFT.

The Bundesbank participates in this cooperative oversight of SWIFT, with the result that it participates in meetings of SWIFT overseers at various levels, where it conveys its knowledge and experience. Payment transactions transmitted via SWIFT are expressly not subject to oversight by the Bundesbank.

Due to the specific way in which SWIFT operates, the generally established oversight requirements for payment and securities settlement systems in the Eurosystem or G20 nations cannot be readily applied to SWIFT as a communication service provider. Specific requirements outlining the manner in which SWIFT should be overseen were therefore defined several years ago, as stipulated in the document “High level expectations for the oversight of SWIFT”. Oversight of SWIFT is primarily focused on aspects of operational reliability and security, including sound contingency planning.