In recent years, there has been growing criticism of SWIFT monopolistic exclusivity, which charges especially high fees, facilitates economic warfare and is used as a tool to impose American sanctions against its political rivals. This situation has caused many countries to search for other options.
The BRIC group (Brazil, Russia, India, China and South Africa), which represents almost 42% of the world’s population and 23% of global GDP, has the potential to disrupt SWIFT’s operations.
China for example, with its inherent tensions with the United States, is taking steps to generate collaboration with Russia and Singapore with the goal of developing a system that can compete with SWIFT.
Russia developed a system for the transfer of financial notifications in 2014 as an option to SWIFT, and has withstood threats from Washington that it could be disconnected from the SWIFT network. Nevertheless, Russia has continued to advance and has created momentum to create infrastructure in countries that are interested in being connected to the network in the future, such as India.
In response, SWIFT developed a cheaper and simpler system, SWIFT-GO, “to provide a fast and smooth payment experience at competitive prices, to anywhere in the world, directly from bank accounts”.
The objective of the Central Bank of Russia’s Financial Messaging System (SPFS), which has been in operation since 2014, is the transfer of digital financial messages, in a stable and undisrupted environment, to facilitate financial transactions.
Their credit institutions and corporate clients are connected directly to the Russian Migration Service (FMS) and define the contractual terms and conditions with Russia’s central bank. In order to create interaction by means of the FMS, foreign institutions are required to send a complete request form, in addition to copies of documents that certify they are legal entities (translated into Russian and approved by an apostille)
The Central Bank of Russia has published drafts of formats, plans and messages based on the most updated version and according to ISO 20022. This international standard for the transfer of electronic messages between financial institutions can be used in transactions between banks and corporate clients within the message system of Russia’s central bank.
The services available to users also include sending and tracking SWIFT messages, sending messages in a proprietary format, managing sender and receiver logs and the managing the types of messages received.
The system that was available in the past solely in Russia has become global and is planned to operate in financial banks and institutions in the Eurasian Economic Union (EAEU). The first transaction in the SPFS network was completed in December 2017 and involved a non-banking factory. Since March 2018, over 400 institutions (mainly banks) have become part of the network, including Russian and foreign banks and other legal entities.
The SPFS operates 24/7, 365 days a year.
- Direct connection to the system.
- No additional costs for integration with the Central Bank of Russia.
- The use of the system requires an agreement with the Central Bank of Russia.
- The system operates on existing communications and interfaces (including bank-client systems, internal automatic banking and additional systems).
- Access to all SPFS clientele and services.
- The possibility to expand the client base.
- The use of Putin’s “single window”, whose goal is to simplify the lives of ordinary citizens and businesspeople.
- Interaction with partners.
- Safe and secure interaction with clients.
It is possible that the new geopolitical situation created by the Russian invasion of Ukraine on one hand, and response by the United States and western countries that impose economic sanctions concerning SWIFT on the other hand, will lead to an acceleration of the aforementioned processes. Russia, which has broad economic relations with many non-western countries, could apply pressure on these countries to join and use the system that competes with SWIFT.
This course of action could introduce a new era of competition, and even economic warfare, and a gradual transition into a multi-channel world for global money transfers. As a result, new opportunities will appear, as will the risks, in the field of international money laundering and the fight against it..
By Moshe Tal,
Chief Research Officer at Itur Financial Intelligence
March 3, 2022