SWIFT Launches New Corporate Access Solution
From now on, it will be much easier and more cost effective for corporates to communicate securely with their banks through SWIFTNet using common messaging standards. This will enable corporates to work with a single multi-bank interface and improve security, operational efficiency and controls, which are important objectives across the business community. As a major step forward in SWIFT’s policy on corporate access to the secure financial messaging network, entities listed on selected stock exchanges can now join SWIFT through a new ‘many-to-many’ closed user group (CUG) and communicate securely with all participating banks of their choice. This will make it easier for corporates to implement payment factory and shared service centre solutions using bank independent web-based payment and reporting platforms.
For over 30 years, SWIFT has operated a secure international network enabling banks to exchange financial messages, primarily regarding payments but also relating to cash management, treasury, securities, custody and trade finance. Corporates have long sought more extensive access to SWIFT’s network, which enjoys an unrivalled reputation for security, resilience and availability. For many years a select number of sophisticated multinationals have used SWIFT to confirm foreign exchange transactions with their bank counterparties. In June 2001, as a further important milestone in opening up SWIFTNet to the corporate community, SWIFT’s membership agreed that corporates could access SWIFTNet through a mechanism known as MA-CUGs (member administered closed user groups). Although these bank-sponsored communications channels have so far been deployed by over 450 bank branches worldwide, and joined by over 120 corporates, they have been criticised by some quarters of the large corporate community for being administratively cumbersome and consequently preserving a restrictive, proprietary relationship.
But now, with multinational corporations increasingly threatening to seek out alternative solutions that could threaten banks’ relationships with these valuable customers, SWIFT and its largest bank members have agreed upon a paradigm shift in approach.
The results of a recent survey by SWIFT with over 40 corporates from a wide range of industries, geographies and sizes highlighted strong corporate demand for a standardised corporate-to-bank platform, along with a high degree of trust in SWIFT. Similarly, case studies carried out by independent consultants regarding the successful adoption of SWIFT by General Electric and Arcelor show a compelling business case, with a return on investment of 400 per cent and 600 per cent respectively over a five-year period.
When the subject of corporate access to SWIFT was first mooted, a number of banks remained cautious, concerned that unfettered access to SWIFTNet by corporates might lead to disintermediation of the banks. However, in recent years, in the face of strong demand from the large corporate community, there has been a growing realisation that corporate access to SWIFT would be a positive step. Banks will benefit by reducing the need for customisation in their proprietary gateway infrastructure and by redirecting resources to the development of new value-added services.
In March 2006, the SWIFT board (whose membership includes some of the largest banks in the world) unanimously approved the new model for corporate access to SWIFTNet. At SWIFT’s AGM on 14 June shareholder approval was granted for this important change, which makes it easier for corporates to use the SWIFT network and communicate with multiple banks.
The new corporate access approach has been described by SWIFT as an ‘important evolution that will make it easier to connect to SWIFT, enjoy better standardisation and interact with multiple banks.’
The criteria for joining SWIFT has now been simplified so that any corporate listed on selected stock exchanges in any of 31 countries is now entitled to join SWIFT as a participant in a CUG administered by SWIFT. The countries selected must support The Financial Action Task Force (FATF) which co-operates in the fight against money laundering. The 31 countries include most of Western Europe, North America, as well as some major economies of Eastern Europe, Latin America and Asia Pacific. It is intended that corporates listed on such stock exchanges will comply with corporate governance and reporting requirements to a sufficient level to preserve the integrity of SWIFT’s membership.
Based on this admission criteria, some 20,000 corporates are now eligible to join SWIFT although the number of primary targets may be nearer to 2,000.
Under SWIFT’s new corporate access model any such corporate can join as a participant in the new single CUG administered by SWIFT. Banks wishing to be a part of this many-to-many corporate access model can also opt into this CUG. Within this CUG, corporates can communicate with all participating banks of their choice. Given the support that SWIFT banks are showing for this new approach, it is anticipated that the principal cash management banks and many others will participate in this new corporate access CUG model. As has always been the case in the conventional MA-CUG model, corporates will again not be permitted to communicate with each other through the new CUG solution. This ensures that the SWIFT network continues to be used exclusively for exchanging financial instructions and reports with the financial services provider community.
In the new corporate access CUG model, SWIFT will invoice corporates directly for their message traffic. Centralised and reverse billing schemes will no longer be supported in an effort to make the pricing highly transparent.
Source: SWIFTAs a result of SWIFT’s announcement regarding the new corporate access CUG, it will now be simpler than ever before for corporates to link with their banks securely to exchange messages relating to payments and cash management. Most corporates are multi-banked for their cash management business and, for years, they have had to cope with a range of disparate electronic banking systems provided by their panel of banks, each system requiring proprietary formats and processes and diverse security protocols, involving frustrating integration problems with the corporates’ host systems. Using SWIFT as a channel to access their banks, many of these problems will be removed and, although it is true that there are sometimes nuances in the way that individual banks want SWIFT messages to be completed, at last corporates will be able to use a single interface to link securely with practically any bank of their choice anywhere in the world using a similar set of messaging standards.
This standardisation will greatly help corporates in terms of reducing processing costs and operational risk, enhancing automation and improving controls. Similarly, this will facilitate improved liquidity management.
To access SWIFTNet and communicate with its banks, a corporate needs a SWIFT interface, of which there are various types, some sold by SWIFT themselves and others sold by independent software vendors. By connecting to the SWIFTNet network, corporates can undertake a wide range of transactions, such as the initiation of payments, balance and transaction reporting and foreign exchange confirmations, as well securities trading and portfolio reporting. The new corporate access CUG will be capable of handling single SWIFT messages (known as FIN messages) as well as bulk files through FileAct.
As an innovative alternative to a corporate having to implement and maintain a SWIFT interface in-house, it is now possible to outsource this activity to a SWIFT service bureau. It is interesting to note that SWIFT service bureaus are widely used by existing SWIFT members. Of today’s 7,000 or so SWIFT members or end points, approximately 1,600 connect to SWIFT via service bureaus. These look set to support a growing number of corporates accessing SWIFTNet over the coming years.
For a corporate to maximise the benefits of direct access to SWIFTNet across its business, there is added value to be gained in deploying a web-based payment and reporting platform as a flexible front end to more easily and efficiently prepare, approve and validate payments for submission to its banks and to handle incoming messages. This is because the range of SWIFT interfaces required to provide a connection to SWIFTNet do not generally provide for the secure ‘large-scale’ preparation and approval of SWIFT messages in the appropriate format. This is where web-enabled payment and reporting platforms can prove particularly helpful, enabling secure, pan-enterprise visibility and enabling the secure preparation, approval workflow, validation and audit trail of all payments being submitted to the SWIFT interface. This could include payments being generated in a shared service centre, treasury, AP department or even an overseas subsidiary. Similarly, the web-based platform can give multiple users (wherever they are located) visibility of balance and transaction information for multiple bank accounts globally.
Currently, when compliance is a key driver for the business community, this structure is highly valuable in those corporates which have multiple ERP systems or even different versions of the same ERP software. In this frequent scenario, the payment and reporting platform can act as a hub to these disparate systems, improving the visibility and control of banking and payments activity across the enterprise.
It is increasingly important for corporates to improve the quality of their payment instructions released to the bank. This will enable them to minimise the need for bank repairs, at a time when banks are introducing differential pricing, i.e. lower pricing for STP payments, but higher pricing on those payments where the bank has to intervene to repair instructions. Proper validation of IBANs, BICs and other routing reference data has therefore become more important than ever.
It is noteworthy that the MA-CUG model is being retained by SWIFT. Many businesses which fall outside the criteria to join the new corporate access CUG as described above, may still wish to access SWIFTNet. Such organisations include privately owned large corporates and partnerships, such as law firms or accountancy firms. The MA-CUG will continue to provide a suitable mechanism for these businesses to access SWIFT. Under the MA-CUG model, a business needs to be sponsored by its bank to join a MA-CUG and will need to join a separate MA-CUG for each bank with which it wishes to communicate over SWIFTNet. MA-CUGs are administered by the respective banks, rather than by SWIFT.
As further good news from SWIFT, significant price reductions have recently been introduced for MA-CUGs, the intention clearly being to encourage wider adoption in the market.
In recent times, banks’ attitude towards corporates accessing SWIFT has become significantly more supportive than a few years ago. So much so that some banks are now actively promoting this form of corporate-to-bank communication instead of or alongside their proprietary solutions. This is the way we anticipate the market heading as corporates get to grips with the new opportunities being opened up to them. On SWIFT’s website, over 50 banks have provided contact points for corporate customers who would like to obtain further information on accessing the benefits of SWIFT.
Looking forward, we can also expect more announcements by SWIFT on making it easier for corporates to join this secure network. Likely initiatives include the further simplification of the on-boarding processes and the harmonisation of contracts signed by banks, SWIFT and corporates.
There is no doubt that the latest news from SWIFT looks set to make it easier for corporates to achieve their long-held objectives of linking with their banks securely through a single interface and improving STP and controls, with benefits for corporates and their banks.