SWIFT is a crucial real-time gross payment system for cross-border transactions SWIFT is a crucial real-time gross payment system for cross-border transactions
City, State, Country., September 3, 2014 - (PressReleasePoint) -The UK will press EU leaders to consider blocking Russian access to the SWIFT (Society for Worldwide Interbank FINANCIAL Telecommunications) banking transaction system under an expansion of sanctions over the conflict in Ukraine, Bloomberg reported on Friday, August 29, citing an unnamed British government official. Although no other media provided any further colour or detail on the story, we considerthis news as an important milestonein the history of sanctions against Russia.
SWIFT is crucial forcross-borderinterbank payments. Headquartered in Belgium, SWIFT works under Belgium law and follows EU regulation. It is a member-ownedcooperative that includes members throughout the globe. Its members include Syrian Arab Republic (5 shareholders and 17 connections), Iran (Islamic Republic of) with 10 shareholders and 15 members, and Cuba (6/10), with 216 countries in total.
According to its website, SWIFT is only a messaging service provider and has no involvement in or control over the underlying FINANCIAL transactions that are mentioned by its FINANCIAL institutional customers in their messages.
Russia was the 15th largest SWIFT member with 73.7m messages trafficand a 1.5% share in the global traffic of all users, but had the highest 42.7% YoY growth in 2013 among thetop-25countries with a share in global SWIFT starting from 0.7% to 17.2% (US) and 19.2% (UK share), according to the SWIFTreport. There were 602 Russian institutions connected to SWIFT, including 108Russian-basedSWIFT shareholders compared with 10,565 connected institutions throughout the globe and 2,389 members.
SWIFT statistics do not reflect the share of local andcross-border operations of Russian banks with the SWIFT system.
According to the CBRreport, during 2011,two-thirdsof all SWIFT traffic in Russia referred to interaction with Russian correspondents and only one- third with foreign banks.
Expulsion of Russian banks from SWIFT is technically possible. SWIFT disconnected some Iranian banks in March 2012afterEU Regulation 267/2012was passed. The regulation prohibits specialised financial messaging providers from providing services to certainEU-sanctionedIranian banks.
SWIFT is incorporated under Belgian law and has to comply with this decision as confirmed by its home country government. SWIFT implemented the regulatory obligation by disconnecting the relatedEU-sanctioned banks.
ING views SWIFT as a crucialreal-timegross payment system forcross-border transactions of Russian banks with foreign counterparties and vice versa.In other words, it is a crucial link for the Russian financial system to the global financial system. Hypothetically, Russian banks/banking system isolation from the SWIFT in theshort-termmay bring turmoil for international payments and securities settlements (with USD/EUR).
The outcome of such isolation may be very sensitive and have a negative impact not only on Russian banks and corporates, but also on international partners, counterparties, creditors and investors creating artificial obstacles for international transactions, payments and settlements.Long-termoutcomes will depend on the scale of sanctions. Full isolation of the Russian banking system from SWIFT seems politically impossible.
No impact on local system
Russian local interbank payment system will be unaffected by isolation from global SWIFT.Russianlarge-valuepayment system is represented by the Bank of Russia payment system (BRPS), which in turn comprises the system for intraregional electronic payments (VER) and the system for interregional electronic payments (MER).
According to BISstatistics, there were 932.3m transactions via VER and 333.9m transactions via MER during 2012 with a total value of RUB599.2 trillion for VER and RUB103.5 trillion for MER. This compares with 51.6m messages sent through SWIFT in 2012 and 73.7m of messages sent through SWIFT in 2013.
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