Money & Banking

RBI penalty: Swift blames short-comings in automated payment processes at banks

PTI Mumbai | Updated on March 07, 2019 Published on March 07, 2019

Global financial messaging cooperative Swift blamed the shortcomings in banks’ automated payment processes and also reconciliation for the regulatory penalties on 19 of them last week and said it’s not their job to police the lenders.

Over the past week, the Reserve Bank has penalised 19 banks, including SBI and ICICI Bank, for non-compliance with the Swift system — the virtual connection between India and the rest of the world when it comes to financial messaging. The penalty amounts ranged between Rs 1 and Rs 4 crore and the overall penalty totals Rs 40 crore.

Alain Raes, Swift Chief Executive for Asia Pacific and EMEA, however, refused to comment on the penalised banks’ contention that such shortcomings are “minor” in nature. “It’s about STP (straight through processing) automation within a bank’s operations, which has nothing to do with us, and also reconciliation,” Raes told reporters here.

He also stressed that none of these shortcomings are Swift’s own doing and expressed their inability to police all the members. “Whenever we find a shortcoming in any member institution, we flag the same to the respective regulator and it’s up to the regulator to take a call on how to tackle the issue,” he said.

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.

It can be noted that the modus operandi of over Rs 13,000 crore fraud at state-run Punjab National Bank, 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.

‘Unfair to blame Swift’

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

He said the agency has listed down 16 principles which are mandatory for every institution connecting with the world, adding all its Indian clientèle 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, he said, adding these two are derived from the list of 11 principles which are a part of an “advisory” list at present.

About data localisation, Raes said increasing instances of regulatory requirements in various geographies will push up costs of financial messaging.

Shetty said SBI will soon be joining a list of 11 Indian banks using the modern GPI (global payments initiative) platform aimed at making payments more efficient, fast, transparent and cheaper. Swift India also recently appointed former SBI chairman Arundhati Bhattacharya as the chairman of its board, he added.

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Published on March 07, 2019
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