Sanctions against Russia’s SWIFT analogue: EU cuts off financial channels to Russia
24 June 2024 15:58
The European Union has expanded its sanctions against Russia to include restrictions on the Russian alternative to the international payment system SWIFT in the 14th package. This was reported by the EU Council, reports "Komersant Ukrainian"
This alternative, known as the Financial Messaging System (FMS), was developed by the Central Bank of Russia.
According to the decision of the EU Council, the use of the SFT is now prohibited. This prohibition applies to EU entities operating outside of Russia – they are not allowed to connect to the SFT or similar specialised services. Furthermore, EU operators are prohibited from conducting transactions with legal entities that use PFSPs outside Russia and are included in a special list.
The new package of sanctions also introduces a ban on transactions with certain financial institutions and cryptocurrency providers registered outside the EU. This ban applies to those entities that facilitate transactions that support Russia’s defence industry. In particular, this includes the export, supply, sale, transfer or transport to Russia of dual-use goods and technologies, sensitive items, goods for warfare, firearms and ammunition.
These measures are part of the EU’s comprehensive approach to limiting Russia’s financial capabilities and its ability to circumvent existing sanctions.
However, Russian gas is still very much needed by the EU: the new sanctions for the first time affected it, but did not hit it.
Global payment systems
Payment systems play a critical role in the global economy, enabling fast and secure international financial transactions. International trade, investment flows and financial markets depend on their reliable operation. In addition, they have become an instrument of geopolitical influence, as the ability to disconnect from the global financial system can be used as a powerful sanction mechanism.
SWIFT
The most famous and popular payment system is SWIFT (Society for Worldwide Interbank Financial Telecommunication), founded in 1973. It unites more than 11,000 banks and financial institutions in more than 200 countries, creating a global network for the exchange of financial messages. SWIFT has become the de facto standard for international banking transactions, providing fast and reliable transfers of funds around the world.
SPFP
In response to geopolitical challenges and the threat of sanctions, some countries have begun to develop their own alternatives to SWIFT. One of them is the Russian SFT (Financial Messaging System), created by the Central Bank of Russia in 2014. The SFT is designed to support domestic Russian financial transactions and reduce dependence on Western financial systems. Its importance has increased since the imposition of sanctions against Russia and the disconnection of Russian banks from SWIFT. The Russians claim that as of the beginning of 2024, 557 users had joined the system.
CIPS
China has also developed its own system, the Cross-Border Interbank Payment System ( CIPS ), launched in 2015. CIPS is aimed at promoting the use of the renminbi in international payments and strengthening China’s position in the global financial system. It provides an alternative channel for international transactions, especially for countries seeking to reduce their dependence on the US dollar.
TARGET2
There are also regional systems, such as Europe’s TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System), which provides euro settlements between eurozone central banks. It was created to ensure the efficient functioning of the single European market and support the monetary policy of the European Central Bank.
