Urgent bilateral diplomatic efforts over the weekend by Ukrainian foreign minister Dmytro Kuleba to lobby his key Western counterparts have finally borne fruit. Over the weekend, European Commission President Ursula von der Leyen confirmed that "important Russian banks will be excluded from the Swift system".

However, the European Commission has not yet indicated the names of the Russian financial entities concerned by this exclusion. The Swift network has nearly 400 identification codes for Russian participants.

Impact confirmed for Russia

Josep Borrell, the EU's High Representative for Foreign Affairs, stressed that the exclusion of Russia "cannot be done in one fell swoop". "This degree of disconnection is carefully calibrated to inflict maximum damage on Russia's financial system while maintaining a minimum level of interconnection with other financial systems," Borrel said.

The banking industry says that the ousting of part of the Russian financial market will have serious consequences, as the Swift system is used by international market participants to communicate financial transactions. Sources familiar with the matter indicate that the exclusion of some Russian banks from financial messaging platforms, combined with the sanctions already applied by the EU, the UK and the US, will have a significant negative impact on Russia's investment environment and financial sector.

The same is true of the Financial Supervision Commission (CSSF), which tells Delano’s sister publication Paperjam that the exclusion of some Russian banks from the network will have a direct impact on them. They will have to set up other communication channels with their counter-parties. So trading will not be impossible, but more complicated.

Swift and the industry in a state of uncertainty

When asked how it will implement the ban on the affected Russian entities, the Swift network said it was aware of the decision and said: "We are engaging with the European authorities to understand the details of the entities that will be subject to the new measures and we are preparing to comply upon legal instruction."

Sources in the Luxembourg banking industry tell us that the ousting of Russia is not expected to have a huge impact on banks in Luxembourg that have a link to Swift. The European authorities must first decide on the list of Russian banks to be targeted and then publish it.

As soon as the list is received, Swift will be able to block the codes of the Russian financial institutions subject to exclusion in its systems. In this way, Western banks will not have to implement anything on their side.

Preventing refinancing of Russian debt

In its latest package of measures in response to the aggression of Ukraine by the Russian army, the European Commission has also announced a ban on the transactions of the Central Bank of Russia and a freeze on all its assets, "in order to prevent it from financing Putin's war".

Josep Borrell explains that "with this measure, more than half or about half of the financial reserves of the Russian Central Bank will be frozen". Indeed, "they are held in the banks of the G7 countries, and this represents, more or less, half of the reserves of the Russian government". This is in addition to the fact that it will also affect a large part of Russia's financial system. On top of that, the assets of Russian oligarchs are also frozen.

This story was first published in French on . It has been translated and edited for Delano.