ACKNOWLEDGMENT

I would first like to thank Mr. Zarrar Farooqui and Mr. Zeeshan Anwer of Habib
Bank AG Zurich for giving us their precious time and helping us out in our research on
SWIFT systems.
Our special thanks to Ms. Maheen Ghauri who is our lecturer and had been a great
help and a constant advisor in carrying out this research.
And lastly to my group member who was of full support and help to me ,during
the entire course of work .
 ABSTRACT
Habib bank AG Zurich was established in 1967on a solid foundation of banking
tradition that spans several generations. Traditional banking values set in the context of
international banking has set Habib Bank AG Zurich’s corporate philosophy- “ Service
with security “ for over 37 years in operation. Providing trade, finance, consumer,
private, retail and corresponding banking products, they offer highly personalized
services to their customers through an international network of over 35 branches.
The Communication department of the bank deals with all inward outward
messages on behalf of branches and departments. To provide best services to bank’s
customers, the key function of this department are quick and fast delivery and disposal of
the messages to right destination and correct department. Any type of delay in message
delivery is not acceptable by their managers. This is why communication department is
also called as ‘GATEWAY’ of an organization.
Communication department consists of the following sections

• Swift Operation
• Test Keys
• Telex Operation
• Telephone (PABX) Board
• Facsimile
• Emails
 SWIFT OPERATION

Introduction
S.W.I.F.T. stands for the Society for Worldwide Inter bank Financial
Telecommunication it provides a set of services related to banking. In 1973, 239 banks in
15 Countries founded S.W.I.F.T, while in 1987 S.W.I.F.T. started Money Market and
Securities. S.W.I.F.T. has its headquarters in Belgium, and it was created to establish a
vehicle of interoperability between banks based on electronic communication. The
principal service offered by the S.W.I.F.T. is that of a message.
The success of S.W.I.F.T. can be attributed to mainly three factors:
• They provide a common language to all financial institutions.
• They meet possible similar business needs required banks.
• The users have created them.
Over the last quarter of the century, however, three main drivers have changed the
business environment dramatically:
• Impact of global electronic communication which has become ubiquitous
• Necessity to decrease cost and straight through processing.
• They need to meet the requirements of diverse business transactions for a
heterogeneous business population.

What is SWIFT?
SWIFT is a computerized mode of transmission of inter-bank financial and non-financial
transactions. SWIFT standard messages are computer-process-able versions of the telexes
they replaced i.e. they are similar to the telex in the terms of the information they
transmit, a message, but SWIFT works on a standard workstation or pc with a SWIFT
software, developed by the SWIFT Belgium, installed in it.
After the successful implementation of the system at Karachi, it was strongly
recommended by the central managers at the Habib Bank AG Zurich to replace the telex
transmissions system for long distance financial and non financial transactions.
Previous System:
Telex / Tele-messaging were the system used by the bank before the
implementation of SWIFT systems to carry functions of financial and non-financial
nature. Telex is a combination of manual and computerized system, the human aspects of
the system include manual test or verification of the message as to whether it has been
delivered or not, whereas SWIFT systems have an automatically generated test given to
the by the system under the circumstances of delivery success or failure likewise.
Telex System had a number of disadvantages:
• It was partly manual system.
• Telex transmissions were time consuming.
• Error prone: The message sent through the telex system did not pass through a
proper verification and validation procedure and so was liable to errors and
discomfort to the customers of the bank
• Expensive
• The message could be lost as they were run on dial up networks, so in the event of
disconnection the entire message was lost.
• Data was openly transmitted; it passed through hands of different people and so
could be easily tampered.
• Security was a problem; security had to be separately done.

How does the swift system overcome these

problems?
The SWIFT systems have overcome the problems faced by the Telex systems
through a number of ways, the systems are especially designed to fulfill the requirements
and routines of banks through a global network. The swift transmissions are cheaper than
Telex. Furthermore, straight through processing for right destinations (if swift facility
available) saves time and possibility of errors. Moreover the swift systems run on LAN
(local area networks) so there is less probing to disconnection and loss of important
matter. SWIFT systems have built in security checks provided technically and
operationally by the SWIFT environment. The SWIFT ensures that the messages should
not be tampered by converting the message into the binary language at the transmitting
end while being transmitted and in the event of the message being received the software
decodes the binary language back to the actual text in which it was written.

Types of services provided by SWIFT system

The SWIFT system covers almost all the banking transactions. Some of its main
functions being:
1. Customer payment and cheques.
2. Payments, Cash Management and Customer status.
3. Financial trading.
4. Collections and Cash letters
5. Securities
6. Precious metals and syndication
7. Documentry credits and guarantees
8. Travellers cheques
9. Cash Management and Customer Status.
SWIFT systems provide information basically in a form of a message.

Types of Messages:
The two major types of SWIFT messages are
1) Unauthenticated Messages
2) Authenticated Messages

1) Unauthenticated Messages
These types of messages are used to convey simple information,
explanation or text delivery that does not contain any movement of finds
or valued information. Therefore, they are known as free format message,
ordinary message or unauthenticated messages.
 999-type message is free format message type.

2) Authenticated Messages
For the movement of funds, financial institutions only act on those
messages, which are authenticated or tested (in case no bilateral key
arrangement exists between two banks). Bilateral keys are identifying
numbers which are given to be typical to each bank and are recognized by
the different banks working together. SWIFT has designed various
methods for financial authenticated messages. The major types are as
under:
- Swift formats starting from 1 are related to customers transfers
- Swift formats from 2 are related to bank-to bank finds transfers
- Swift formats starting from 3 are related to treasury market
- Swift formats starting from 4 are related to collection an cash letters
- Swift formats starting from 5 are related to securities and shares

How does the information flow within the bank?

Input:
The input is provided by the customers as to what service do they need from the bank,
through face-to-face interaction, customers directly approach the bank official, the
official then through an inter-bank process sends the information to the communications
department. SWIFT acts as a mediator between the customers.

Movement of information:
All the incoming messages are stored in received queue and outgoing messages are stored
in the Local ACK (A positive Acknowledgement) queue. In case of field or destination
error swift system would reject the message and send it to the Local SWIFT NACK (A
negative acknowledgement) and the message would remain unsent. In case of the
message receiving a positive signal the message is converted to binary language at the
transmitting through a card known as Encryptor, built in the SWIFT system provided by
the Headquarters of SWIFT at Belgium. The message flows to the Belgium in a matter of
seconds and from there it is dispatched to the receiving end, the SWIFT system at the
receiver host would convert the binary language back to the actual text in which it was
written. The messages that are successfully sent are stored in the main server as SWIFT
Storage and can be retrieved whenever needed.

End users of the system and the Departments

catered:
The SWIFT system is used by almost all the departments in the bank and caters the need
of almost all levels of managements. The main end users being:
• Bank clients
• Habib bank AG Zurich staff
• Departmental heads

The Departments being attended to

• Remittance
• FRMT ( foreign Remittance)
• Import
• Export
• Treasury
• Reconcilliation
How is security ensured in the SWIFT systems?
The SWIFT Belgium has ensured security and subscription on the part of the
users of the SWIFT systems by issuing BIC (Bank Identifier Codes) to each member
bank and only those banks which are given the BIC code will have access to the SWIFT
system.
There are three levels of verification that are used to authorize and check the
messages posted by the SWIFT administrators. The three levels of verification are
• Entry level (posting of data)
• Verification level (checking of data)
• Authorization level (checking of keys and forwarding the messages to receiver
banks via Belgium)
Modification is possible in all the three stages of data validation, but once the
message has been authorized by the Authorization level officer it cannot be
changed, and for any scrutiny in the information the headquarters of SWIFT at
Belgium will have to be consulted.

Creation Verification
Authorization

Swift-System
To ensure security and accuracy of the information the management of the bank make
sure that three different people operate all the three levels of verification, so that error if
any in the information can be traced and corrected before being dispatched.
The SWIFT software designed by the central headquarters at Belgium have a built
in access card that prevent the hacking of the information , this card has firewalls and
password protection and ensures that only the authorized users can access the
information.

SECURITY BKE
SUPERVISOR OPERATOR
OFFICER ADMINISTRATOR

VERIFIER

Security officers:
SWIFT has designed two security officers for creation of user passwords. Security
officers are authorized to create passwords for users of SWIFT. The identities of officers
are:
1) Right Security Officer.
2) Left Security Officer.

1) Right Security Officer: These personnel select the predefined profile provided by
the SWIFT and USER ID for an officer as advised and approved by the Zonal
 Management. In result system generates two-digit password and indicates the
newly created User as unapproced.
2) Left security officer has the job of verifying the previous working of the right
security officer and finally approves the password.

All passwords are created and supplied to the departments and branches
individually. The departments and branches then may use the passwords for the
preparation and verification of their respective SWIFT messages.

BKE Administrator:
BKE(Bilateral Key Exchange) is a part of key management office and key management
authority. It is responsible for the preparation and management of bilateral keys. In
bilateral key exchange process, secret keys are exchanged with different banks. Those
keys are used to calculate a unique message authentication code that is sent with each
message, that is, it serves as the identity of one bank to the other. There is a difference
between the “Send” and “Received” keys. A sent key is used to send message to a
correspondent while a received key is used to receive message from a correspondent.

For security reasons, keys should be replaced periodically. The replaced key should not
be discarded immediately because it might be needed to authenticate messages retrieved
from SWIFT Storage. The bilateral keys can be exchanged over the SWIFT network or
by paper mail. The BKE services reduce the effort required to renew bilateral keys on a
regular basis. Therefore, you can increase the frequency of key renewal to ensure
maximum security without adding significantly to you operational workload.

The BKE service can be used in two modes, Automatic and Manual. Automatic BKE is a
background process that only requires intervention if an error occurs. BKE messages are
created and sent automatically according to the associated pre-agreement. Manual BKE
works in the same way, except that messages are held in queues and must be sent or
received manually.
SUPERVISOR
The supervisor has the job of keeping track of the messages that are stored for printing;
he has the account of the names of the correspondent banks, countries and currencies.
The supervisor’s option of event journal displays the activity of all SWIFT users. The
four main activities of the supervisor are:
1) Message Approval.
2) Message Filing.
3) Monitoring.
4) Security Definition.

The supervisor has a stock of messages ready for final approval and translation. Once
approved and sent to SWIFT Outbound Queue the message cannot be reversed or
stopped. He also has the capacity to disable or enable user passwords of the SWIFT
users.

OPERATORS
Operators come under the Supervisors and have options such as:
1) Message Creation.
2) Message File.
3) Message Modification.

Operators have the basic job of creating new messages and copying them from templates.
The operator fills in all the data provided by the concerned department on formats
defined by SWIFT within there software. After the completion of a message, the operator
roots it to the verification level for the scrutiny of any errors. The operator keeps a record
of previous messages by reference numbers and message types. The operator also has the
modification authority that is correction, deletion or addition of any missing information
in the message.
VERIFIERS
Verifiers of the message are normally present in branches. The verifiers check the
printouts of messages with the source documents. After checking the details the verifier
signs the over the same printout and gets the signature and approval of departmental in-
charge.