SWIFT is a private company whose purpose is to ensure the functioning of an international electronic communication network between financial market participants. Most banks are members of SWIFT.
Members are identified within the network by their BIC code, which includes:
- the identification of the bank on 4 characters
- the country code on 2 characters
- the city code on 2 characters
Examples: PARBFRPP, CRLYFRPP, BONYUS33
The SWIFT network makes it possible to exchange a wide variety of messages between banks, in a format that has become, as the text quoted above indicates, a true market standard. Indeed, market payment systems such as TBF or CRI have used this format as a model for their own messaging.
SWIFT messages are classified by category:
- Categories 1 and 2 include messages concerning cash transfers between banks, or payment messages.
- Category 3 covers the market for interest rate and foreign exchange products as well as derivatives
- Category 5 concerns the securities market
- Category 9 includes all information messages
This category of messages includes all fund transfers between banks. The 2 examples below illustrate "classic" cases.
In the first example below, following a negotiation (e. g. a money market transaction), bank A must pay an amount in foreign currency to bank B. Bank A knows the payment instructions (SSI, Standard Settlement Instruction) of Bank B and therefore knows who is the correspondent of B in the currency in question. It therefore sends an order to its own correspondent to debit its account (MT202) in order to transfer the funds to the correspondent of B, for the benefit of the latter. After completion of the transfer, the 2 correspondents inform their respective customers by debit (MT900) or credit (MT910) notices of the successful completion of the transaction.
The following example shows a use case of MT103, a message normally reserved for non-bank (corporate) customers. Customer A must pay customer B. It therefore instructs its bank by giving it payment instructions from its counterparty. Bank A then issues two messages: one to its correspondent, instructing him to debit his account to transfer funds to bank B (MT202), the other to bank B, notifying it that the funds received via A's correspondent are in fact to the credit of his customer B (MT103). Bank B reconciles the two pieces of information (transfer of funds from the correspondent of A and MT103) before crediting his client and notifying him (MT910).