Its worth highlighting that in SWIFT's management of the change between ISO15022 and ISO20022, one of the key changes is the ability for institutions, or groups of institutions, to sponsor a business process. So where individual messages were agreed between members in ISO15022, now a group can identify and sponsor a complete business process That process might include existing messages and also define new messages, the aggregate of which forms the process. The copyright in the business process belongs to the firms sponsoring the process although part of the arrangement with SWIFT is that as soon as a process is approved under ISO20022, the licensor (the sponsoring group) provides a free unlimited license to all other SWIFT members to use and access that business process. While this is a good thing, in that it brings the business level of thinking into the management of what is otherwise an excruciatingly detailed technical exposition, it naturally stifles an otherwise competitive market. Why would I, having identified a unique application of standards, messaging and data, that could give my company a market and financial advantage, immediately give that advantage away to my competitors. At the annual symposium of SWIFT members, the reason most often heard is that it is all about collaboration for the common good. This would be believable if everyone were implementing their standards consistently, but we already know that they are not. So, to deny the natural instincts of competitive firms seems to me to be counter-productive.
It would be more logical to allow processes to be designed and sponsored by groups with an interest in doing so and for subsequent licensing to be at a cost determined by SWIFT under generally accepted guidelines - one of which would be a stronger element of network validation. In this scenario, there would be far more appetite for firms to find and develop new and better ways to do business as they could gain the benefit directly from having invested in the process improvement within their organisations and also get paid royalties (or deductions from traffic fees) by SWIFT for having assisted in a general improvement. This highlights one of the issues in managing technology today. The cost of improving a process or deploying a technology is very often hidden, with specific aspects overlooked. Combined with a very high absolute cost anyway, returns on investment that are marginal to the business can often be material to the considerations at board level. I mentioned earlier that SWIFT is a cooperative and that messages pass between members who are all financial institutions. This, rather closed loop view is not strictly accurate for our purposes here.
There are many software vendors, outsource agents, governmental authorities, auditors and so on that have an interest in the way that communications are structured and how they are sent between parties. Managing this large-scale technology platform is a major factor in most financial services firm's planning. Rather like outsourcing a business function to a third party, the cooperative assures, within limitations, that business planners can assume certain things about their technology platforms with some degree of safety. Unfortunately, again because of a widely held belief, this can cause problems. By way of introduction to this issue, SWIFT's network is guaranteed to be secure through a strong process of authentication, currently using hardware and password ‘keys'. This means that a message can be created at one point but only sent to another destination on the network if the ‘keys' for sender and destination have been swapped by authorised parties at each firm - so called Bilateral Key Exchange or BKE. While in transit, SWIFT performs no other role than (i) perform limited validation of certain fields within each message and (ii) ensure that what leaves point A arrives at point B without anyone being able to access the message contents en-route. This would be a major factor in any business-level consideration of a technology deployment.
In 2007, following concerns expressed by the US security industry (in this case security as in safety rather than equity) SWIFT granted access to message contents to support the US investigations into terrorist activities. This caused uproar in the community not least because of the long-term implications for security of banking information and the limitations this puts on data protection principles. Messaging electronically in financial services creates an opportunity for any firm to generate a business advantage by automating processes and removing the manual, error-prone, costly elements represented by humans. So, it would come as some surprise to those outside the industry that all the efforts to automate a chain of activity between multiple counterparties, can be stopped and started within the chain by human intervention caused by outdated approaches to security. For instance, if a bank receives a message from a data provider that a dividend is about to be announced the recipient can easily automate that process so that the implications of the event are automatically flowed through the business. For example, if the dividend is not domestic, systems will take the data from the message and automatically calculate whether any of its customers are impacted in terms of taxation of the dividend and if so, spin off a separate process to recover some of that tax. When the dividend is actually paid (MT566) however, the typical scenario is that the message is first printed out, then sent for approval, presumably because it involves the transfer of funds. Once approved, an entirely new message is created, manually (no cut and paste) and then sent out to the recipient. It does not take much analysis to figure out that while the existence of the standards and message layouts works to give the opportunity for reduced costs and reduced risks, the manual processes still in-built into management systems and thinking eradicate any cost reduction or risk mitigation.
So, apart from the fact that members can vary the content and layout of messages away from the envisioned standard; apart from the fact that management of new processes does not necessarily allow for a freely competitive market or reward the developers adequately; apart from the fact that absolute security of the message contents is assumed and apart from the fact that a supposedly STP-system exists that starts and stops through manual intervention, it's a pivotal system that cannot fail. This is not meant to be critical of SWIFT. By no means. For any organisation which essentially is a grouping of competitors, developments in standards and message processing are always going to have some level of compromise and the world is not perfect. The examples above were cited to highlight, in the context of the subject matter of the article, that even when you have many thousands of people all looking to achieve the same objective with the same tools, it is not easy. SWIFT does a great job and should be congratulated for what it has achieved. Is there room for improvement?; yes, of course.
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