Swift gives short shrift over RBI penalties to Indian banks

Swift has made it abundantly clear that the recent spate of penalties dished out by the Reserve Bank of India (RBI) have nothing to do with its organisation.

Over the past week RBI penalised 19 banks

Over the past week RBI penalised 19 banks, including SBI and ICICI, for non-compliance with Swift’s system.

FinTech Futures did cover a story about three banks getting done for “deficiencies in regulatory compliance” last month. However, there are so many now, it’s not practical to cover every event.

In the latest round of RBI justice, Alain Raes, Swift chief executive for Asia Pacific and EMEA, tells The Economic Times and other Indian news outlets: “It’s about STP (straight through processing) automation within a bank’s operations, which has nothing to do with us, and also reconciliation.”

He also stressed that none of these shortcomings are Swift’s own doing and expressed their inability to police all the members.

Whenever it finds a shortcoming in any member institution, Swift flags the same to the respective regulator and it’s up to the regulator to take a call on how to tackle the issue, he explains.

Raes, however, conceded that the aspects on automation are fairly expensive for the lenders, but its country head Kiran Shetty was quick to add that the cost of a fraud will be much larger.

The Economic Times also brings up last year’s Punjab National Bank (PNB) incident. The bank lost $1.7 billion in fraud. ($2 million was also stolen from India Union Bank.)

At that time, India’s central bank gave an ultimatum to banks that they must integrate Swift into their core banking solutions by 30 April 2018.

This PNB fraud, allegedly perpetrated by diamond traders Nirav Modi and Mehul Choksi, “rested on the abuse of the Swift system”.

In the absence of an integration between a bank’s core banking system and the Swift platform, a PNB official connived with the fraudsters to send several payment messages to dubious foreign entities, defrauding the bank.

Raes parried a question on whether all the institutions served by them have their CBS platforms integrated with Swift but says they have been insisting on reducing manual intervention in transactions as much of the frauds have happened due to manual interventions.

He also says it will be unfair to blame Swift for frauds being perpetrated at member-banks as their role is limited to flagging concerns as a “hygiene” policy.

Raes says the agency has listed down 16 principles which are mandatory for every institution connecting with the world, adding all its Indian clientele are in compliance with them from a self-attestation perspective.

It is also adding two more principles as part of its ongoing efforts to make the security architecture more robust. These are derived from the list of 11 principles which are a part of an “advisory” list at present.

Shetty adds that SBI will soon be joining a list of 11 Indian banks using its gpi (global payments innovation).

In other recent news, yesterday (6 March), Swift unveiled a proof of concept (PoC) on e-voting using distributed ledger technology (DLT).

Last month, RBI launched its Ombudsman Scheme for Digital Transactions (OSDT), for redressal of complaints around the digital transaction services.