SWIFT Moves to Reduce Costly Settlement Errors

SWIFT has rolled out a range of new initiatives designed to reduce costly settlement errors and improve the rates of automation of Standing Settlement Instructions (SSIs).

 

According to SWIFT, these initiatives are a response to the industry need for greater efficiency in SSI processing. SSIs are agreements between two financial institutions that fix the receiving agents of each counterparty. They make for speedy payment and settlement, but SSIs are frequently changed, which results in settlement errors and payment rejections. Research jointly conducted by SWIFT and 12 of its customer banks suggests there are currently about 40 million such payment errors every year, costing the financial industry an estimated US$700 million.

 

SWIFT has therefore launched a global SSI repository, aiming to have greater accuracy to benefit the financial industry. The multiple sources and selection strategies used are intended to ensure that an institution's SSIs are complete, accurate and able to be replicated with ease. An SSI directory for retail payments based on the repository is to be updated and published on a monthly basis. At a later stage, SWIFT is also intending to launch an SSI directory for treasury in the FX and money markets sectors.

 

The second initiative is the creation of a standard messaging format for distribution of cash SSI updates, available from November this year. The message format will be structured, validated and authenticated, and allow senders to either specify a list of recipients for the notification, or to inform the broader SWIFT community.

 

SWIFT also reports that they now offer a diagnostics service that informs customers when counterparty SSIs held in their payment applications are incorrect and details corrective measures. The service, which was unveiled at Sibos in October 2010, validates a customer's current list of counterparty SSIs against multiple information sources to provide a reliable picture of their accuracy.

 

"The lack of a single source for SSI information has led to payment failures, costing banks considerable time and money. In the age of automation and real-time reporting, it is crucial that this situation improves," says Patrik Neutjens, Head of Reference Data at SWIFT.

 

Neutjens says the three initiatives will provide a comprehensive solution to some of the problems with changing SSIs. "SWIFT's efforts will... [culminate] in a standard message format to allow banks and other financial institutions to efficiently update each other on changes to their SSI arrangements," he adds. "This message format will ensure that only relevant parties are informed of the changes and prevent financial institutions being overwhelmed with irrelevant updates."

 

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