SWIFTs Role in Operational Risk Compliance

Banks are focusing inward in their quest to comply with Basel II operational risk requirements. This is of course critical if the banks are to achieve an acceptable level of success in its compliance. However, by focusing solely inward, the role that external parties play may inadvertently be overlooked, and is a serious concern. One of those key parties is SWIFT. How the bank utilizes SWIFT is a prime component that must be examined carefully. For a substantial percentage of banks around the world, SWIFT provides its communications backbone to the outside financial world. Certainly its international transactions, trades and correspondent relationships are almost exclusively funneled through SWIFT. In many countries, domestic high values are channeled through the SWIFT network as well.   

Undoubtedly, individual risks play a larger role in various areas of the bank. A bank that is heavily into retail banking operations has a high risk of armed robbery. In other words, its core business, which by its very nature involves reliance on an extensive branch network, affects its risk profile. Likewise a bank’s SWIFT reliance and usage patterns dictate the risk profile and risk mitigation steps that subsequently follow. 

A bank should examine all the risk categories when assessing operations risk under Basel II. This is no less true when assessing the SWIFT component of a bank’s operations. All seven operational risk categories; Internal Fraud; External Fraud; Employment Practice and Workplace Safety; Clients, Products and Business Practices; Damage to Physical Assets; Execution, Delivery and Process Management; and Business Disruption and System Failures must be accounted for in a proper Basel II operations risk compliance program.