CDS (II) 2022 General Knowledge · Question 99 of 120

Correct — C, Global money transfer system. SWIFT is the plumbing of cross-border payments. It is a member-owned cooperative, founded in Brussels in 1973 by 239 banks from fifteen countries and now headquartered at La Hulpe in Belgium, which connects more than 11,000 financial institutions across over 200 countries and territories. Every institution on it has a Business Identifier Code under ISO 9362 — the familiar SWIFT code you type on a foreign remittance form. Of the four options, only this one describes the payments world SWIFT belongs to: it is not an investigating agency, not a screening system, and nothing to do with share prices. Worth being precise about how it works, because a later question may test it: SWIFT itself does not move money. It carries the messages containing the payment instructions between the banks in a transaction, and the money then moves through those banks' own correspondent accounts. Calling it a money transfer system describes what it is for; calling it a secure financial messaging network describes what it does.

• (a)Global financial intelligence agency — SWIFT investigates nothing and has no enforcement powers. Financial intelligence is the work of national financial intelligence units — India's is the Financial Intelligence Unit-India under the Department of Revenue — coordinated through the Egmont Group.
• (b)Global terror finance detection system — That describes the Financial Action Task Force, the inter-governmental body that sets anti-money-laundering and counter-terror-financing standards and maintains the grey and black lists. SWIFT is a private cooperative that carries payment messages, not a standard-setter or a watchlist.
• (d)Global stock-market information sharing system — Wrong market entirely. Securities-market information travels over exchange feeds and vendor networks; SWIFT's traffic is bank-to-bank payment and treasury messaging.

A cross-border payment needs two separate things to happen: a secure, standard-format instruction has to reach the receiving bank, and value has to be settled between the banks. SWIFT supplies the first. Because almost every large bank in the world is connected to it, being cut off from SWIFT makes ordinary international banking extremely difficult even where no money has been frozen — which is precisely what turned a technical cooperative into an instrument of statecraft.

The item is dated by its own wording — 'frequently mentioned in news' points at February 2022, when the European Union, the United Kingdom, Canada and the United States removed several Russian banks from SWIFT after the invasion of Ukraine. Russia was fully banned from the system on 20 March 2023. The exclusion also explains why students now meet SWIFT alongside alternatives: Russia's SPFS, China's CIPS and the rupee-settlement arrangements that Indian banks opened in 2022. On the key's wording, note the honest tension flagged above — 'money transfer system' is a loose description of what is technically a messaging cooperative, but it is the only one of the four options that puts SWIFT in the right industry, so it is unambiguously the intended answer.

• SWIFT was founded on 3 May 1973 in Brussels by 239 banks from 15 countries and is headquartered at La Hulpe, Belgium.
• It connects more than 11,000 financial institutions in over 200 countries and territories.
• It assigns ISO 9362 Business Identifier Codes — the codes commonly called SWIFT codes.
• SWIFT carries the messages containing payment instructions between institutions; settlement happens through the banks' own correspondent accounts.
• Several Russian banks were removed from SWIFT by Western states after February 2022, and Russia was fully banned on 20 March 2023.

• Confusing SWIFT with the Financial Action Task Force; one carries messages, the other sets standards and lists countries.
• Assuming SWIFT settles payments — it transmits the instruction, and settlement happens elsewhere.
• Reading SWIFT as a governmental or UN body; it is a private, member-owned cooperative under Belgian law.

Either as a one-line 'what is it' recall, or embedded in a statements question about sanctions, correspondent banking or digital currencies.

• practice — not a real PYQ

  The Financial Action Task Force, often in the news, is concerned primarily with which one of the following?

  • (a)Setting global standards against money laundering and terrorist financing
  • (b)Fixing exchange rates between member currencies
  • (c)Rating the creditworthiness of sovereign borrowers
  • (d)Clearing cross-border securities trades

  Answer(a) Setting global standards against money laundering and terrorist financing — the FATF also maintains the lists of jurisdictions under increased monitoring and under call for action.

• practice — not a real PYQ

  In an international bank transfer, the SWIFT code of a bank is technically which one of the following?

  • (a)An International Bank Account Number
  • (b)A Business Identifier Code under ISO 9362
  • (c)A Legal Entity Identifier
  • (d)A Magnetic Ink Character Recognition code

  Answer(b) A Business Identifier Code under ISO 9362 — assigned by SWIFT to identify an institution on its network; the IBAN identifies the account, not the bank.