Annual Report 2006
 | This is my 15th and final letter to you. Before I summarise 2006, allow me to reminisce about how we transformed SWIFT together over the past decade and a half. Looking back to 1992, we achieved our transformation in three distinct phases. |
1992 – 1996 “Strengthening the co-operative”
During this period we strengthened the confidence our members had in the SWIFT co-operative. We put major stakes in the ground about our pricing, markets and systems. I still remember my first Board meeting where I wrote a note to the Chairman that prices needed to go down, not up, and that we needed to conduct urgent market research on price sensitivities. We’ve never looked back. Prices are now down over 80 percent overall from 1992.We also quantified our four major markets that drove FIN messaging traffic — payments, treasury, trade and the new securities market. Today, securities is over 40 percent of our business, and message traffic has grown seven-fold from 405 million messages in 1992 to nearly 2.9 billion messages in 2006.
Finally, and most importantly, we initiated our 4 Pillars I (4PI) programme — “the road to 5x9s”. 4PI focused on 1) dramatically reducing systems’ recovery times, 2) increased message throughput rates, 3) fixing our disaster procedures, and 4) scaling our systems for the tremendous growth ahead.
In 1996 we published SWIFT2001 which became the first instalment of our strategic trilogy: SWIFT2001, SWIFT2006 and SWIFT2010.
1997 – 2001 “SWIFTNet”
SWIFT2001 covered our second transformational phase. We focused on growing our securities markets and providing the SWIFT “single window” to the ever-expanding segment of payments and securities market infrastructures (MIs). We have grown from 2–3 MIs to now over 100 MIs, representing 30 percent of our message traffic.SWIFT2001 also anticipated the need for interactive messaging, better file transfer, and the need to move from our X.25 network technology to the new technology of the Internet — Internet Protocol (IP). In 1997, at Sibos in Sydney, we announced the “Next Generation” of SWIFT, now called SWIFTNet.
It was during this period that we instilled our failure is not an option (FNAO) culture of resilience for our IT/Ops division. This soon spread, end-toend, to all of SWIFT. It remains our defining culture to this day. FNAO served us well in the difficult days following September 11, 2001. In 2002 we published SWIFT2006. 2002 – 2006 “Transformation”
SWIFT2006 defined our third transformational phase. Following 9/11, we initiated our 4 Pillars II (4PII) programme —“The Road to Resilience”. 4PII raised our resilience to even higher levels by strengthening our 1) physical and cyber security, 2) personnel processes, 3) crisis management, and 4) service continuity. 4PII also drove important consultations with the Resilience Advisory Council (RAC) drawn from our global customers and key market infrastructures and the SWIFT Crisis, Communications and Coordination group (SC3) representing the five major currency zones.In 2004 we significantly upgraded the depth and transparency of our security audit reporting by moving to the SAS 70 standard — probably the state-of-the-art standard for security audit. 2006 will be our third year running in which we delivered an in-depth “annual report” on the audited status of the controls involving confidentiality, integrity, availability, change management and security governance for our SWIFTNet messaging and related systems.
SWIFT2006 launched the SWIFT Pricing Challenge I to reduce average message prices by 50 percent over the 2002–2006 time frame. We succeeded. By December 2006, prices had fallen by 52 percent. This was all the more challenging as the pricing challenge was announced in May 2001, before 9/11. We still remained committed to the challenge, even though we had to make substantial unplanned investments to raise our resilience to even higher levels.
SWIFTNet was piloted in 2001–2002 and the entire community migrated to it over the 2003–2004 time frame. SWIFT knows how to migrate. I am sure many of you remember the USE security migration (1992), the EURO (1998), Y2K (1999), standards (every November), ISO 15022 (2002) and now SWIFTNet Phase 2 (2007–2008).
During this time frame we upgraded our strategic partnering with major software and technology firms such as IBM, Microsoft, Oracle, SAP and SunGard. They are all vital to our banking and securities solutions and each adds significant value to our SWIFT offering.
In June 2006, the AGM voted 98.6 percent to approve a broader category of corporate participant, which could very likely open up a major new corporate-to-bank market segment for SWIFT and its members.
In June 2006, SWIFT2010 was approved by the Board. Based on our past successes and the renewed confidence from our Board and membership, SWIFT2010 is our most ambitious strategy yet. Our new vision “Achieve more, together” also symbolises what our co-operative has become. “More” means growth — harnessing our economies of scale and scope which are at the centre of our business model. “Together” brings us strength — the strength of our worldwide community. Every important financial institution is a member of SWIFT. If you Google “more together”, SWIFT2010 comes up as the number one link!
By the end of 2006, we can honestly say that SWIFT is unrecognisable from what it was in 1992. A transformation has clearly taken place.
Disappointments
Of course not everything went as planned. Bolero should have been more bank-focused. EDIFACT was overtaken by XML. We had to reverse out of the Global Crossing outsourcing. GSTPA failed. The resilience we have shown in our disappointments and the ability to learn from our mistakes are two of SWIFT’s strengths. That is also a hallmark of our FNAO culture.2006
Now let’s turn to last year. 2006 was another very strong year for SWIFT.SWIFT2010 approved – In June, we presented our SWIFT2010 strategy with its new vision and four strategic growth thrusts: Developing regions, Corporates, European harmonisation in payments and securities, and Securities and derivatives.
Strong financials – Our financials were strong for all the right reasons: strong revenues from all market segments and cost traction resulting from our prior two-year structural cost reduction programme. Early in 2006, we forecast a surplus and as a consequence, the March Board approved an additional investment of EUR 10 million to accelerate our SWIFT2010 initiatives.
In June, we announced a mid-year price reduction and free hardware security modules (HSMs) for our Phase 2 migration. Counting our year-end rebate of 7 percent on all SWIFTNet messaging, we returned EUR 65 million to you — six months of price reduction (EUR 16 million) + free HSMs (EUR 23 million) + rebate (EUR 26 million).
Compliance – In June, the New York Times and other newspapers revealed a secret US Treasury (UST) programme for terrorism investigations involving SWIFT. We have endeavoured to keep our community fully informed via regular updates on www.swift.com. SWIFT is totally committed to protecting the confidentiality of its members’ data. That is why SWIFT obtained unique and historic protections from the UST and why we say the data that is subpoenaed is legal, limited, targeted, protected, audited and overseen. The limited sets of subpoenaed data can be used exclusively for terrorism investigations and for no other purpose. Senior European officials have called for an EU-US dialogue to provide legal certainty for SWIFT and its member banks. SWIFT fully supports this approach and discussions between the EU and US are currently under way.
System availabilities – I used to say we are asymptotically approaching 5x9 availability. I am proud to report that in 2006, we recorded 100 percent availability for SWIFTNet while SWIFTNet FIN, which runs under SWIFTNet, came in at 99.996 percent. It is no accident that there are so few accidents at SWIFT. CEO succession – On 19 February 2007, we announced that the Board has selected Lázaro Campos to succeed me as SWIFT’s CEO. The process was put in place three years ago when we announced a final extension of my contract. Lázaro is a 20-year veteran of SWIFT and the Company will be in very safe hands. I am delighted with the Board’s choice and wish Lázaro the best of success in his new and important responsibilities. A two-month transition will ensure a smooth handover. On 23 April 2007, I will step down after serving as your CEO for 15 years. It has been an honour and a privilege and I have enjoyed every minute.
Thanking you
I would like to thank the Board for their time and dedication. The success of SWIFT is due in no small part to our loyal and dedicated Board members, past and present, who gave selflessly over the years to govern your co-operative. SWIFT cannot succeed without an inspired Board and I am pleased that the Board is now encouraging SWIFT to “raise its ambitions”. SWIFT has changed a lot in the 15 years I have been here. I would like to emphasise the growing importance of your Board and the need to continue to send us your best and brightest to help oversee and guide SWIFT into the future.A very special thank you to all our members and their national and user group chairpersons. Your dedication and support make our SWIFT franchise strong and unique.
SWIFT has nearly 2,000 professionals who work tirelessly for you around the world and around the clock. Each and every one of them deserves our special thanks for making SWIFT what it is today and for delivering such great 2006 results.
In June, Joe Eng decided to leave SWIFT after achieving tremendous success over the seven years he was our CIO. Joe set the standard for a CIO, and we all wish him well in his new exciting ventures. We welcomed Mike Fish, Joe’s long-serving deputy, as our new CIO and Executive Committee member. We could not have achieved our transformation without the contributions, talents and leadership of the SWIFT Executive, both current and past. I am confident our current team led by Lázaro will continue the transformation. We cannot be complacent.
SWIFT is really a special company. Our culture, our performance and our mission all combine to produce one of the most successful cooperatives in the world. I am going to miss it.
Sincerely yours,
Leonard H. Schrank
CEO, 1992–2007February 2007