Penalty on PNB for violating SWIFT norms

Context

  • Reserve Bank of India (RBI) has slapped a penalty of Rs2 crore on Punjab National Bank (PNB) for non-compliance of regulations with regard to SWIFT operations, the state-run lender said on 26 feb 2019.
  • The massive Rs 14,000-crore fraud perpetrated by billionaire jeweller Nirav Modi and his uncle Mehul Choksi at the PNB was a case of misuse of this messsaging software.

SWIFT

  • Behind most international money and security transfers is the SWIFT system, a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.
  • SWIFT stands for the Society for Worldwide Inter bank Financial Telecommunications. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.
  • SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is interchangeably called the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code.
  • The SWIFT system was formed in 1974. Seven major international banks formed a cooperative society to operate a global network that would transfer financial messages in a secure and timely manner.
  • Within three years of introduction, SWIFT membership had increased to 230 banks across five countries. Although there are other message services like Fedwire, Ripple, and CHIPS, SWIFT continues to retain its dominant position in the market. Its success is attributed to how it continually adds new message codes to transmit different financial transactions.
  • While SWIFT started primarily for simple payment instructions, it now sends messages for wide variety of actions, including security transactions and treasury transactions.

Who Uses SWIFT?

  • In the beginning, SWIFT founders designed the network to facilitate communication about Treasury and correspondent transactions only. The robustness of the message format design allowed huge sociability through which SWIFT gradually expanded to provide services to the following:
  • Banks
  • Brokerage Institutes and Trading Houses
  • Securities Dealers
  • Asset Management Companies
  • Clearing Houses
  • Depositories
  • Exchanges
  • Corporate Business Houses
  • Treasury Market Participants and Service Providers
  • Foreign Exchange and Money Brokers

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