Question: I asked my Swedish bank to transfer to my UK bank 50,000 euros through a SEPA payment. Unfortunately, the IBAN and BIC were old and no longer in use and the UK bank returned the money the same day, i.e. the transaction failed. The 50,000 euros was put back into my account after conversion to Swedish kronor (SEK).

However, the amount refunded was signficantly less (about 633 euros) owing to a different exchange rate being used for the conversion EUR=>SEK.

Should the Swedish bank not have used the same rate for the refund? In other words, should not the sending of the wrong codes have simply resulted in a reversal or cancellation of the transaction?

Answer: 
**It isn't a simple reversal, because money actually changed hands when the transfer was made.**

When the transfer was made 50,000 Euros was credited to a UK bank, and some number of kronor was debited to your Swedish bank. When the transaction was reversed 50,000 Euros were transferred back to the Swedish bank. Those Euros are now worth fewer kronor, so your Swedish bank ends up with fewer kronor in its coffers.

There would be only two ways of fixing this. Either the UK bank sends more than 50,000 Euros, or the Swedish bank tops up your account. Either costs one of them something, and banks are not going to pay you for a mistake you made.
What the bank 'should' have done is a question of law, but I will point out that the reason for the rejection was not the bank's error, it was yours / the payee's [which, in the bank's eyes, is still kind of your error].

Consider from the bank's point of view:

(1) You release 50k SEK from your account;

(2) The bank, seeing it is headed to a EUR account, converts it to EUR for you, at their available rate [of course, they will take a cut off of the conversion];

(3) The bank sends the EUR off to the account you requested;

(4) The EUR is rejected due to invalid account;

(5) The bank needs to convert the EUR *back* to SEK for you [again, they do likely take a cut], at a conversion rate that happens to give you 633 less SEK than what you started with.

If the bank did as you ask, and used the same rate to convert your refund in step 5 as your original conversion in step 2, they might have lost money. ie: if the SEK had strengthened in between step 2 & step 5, then it would have cost the bank more EUR, out of their own pocket, to get you your SEK back. They are not a charity, so they chose to charge you the regular conversion rates in both steps.

Whether they *should* do as you ask is probably a question of law; whether they *might* do as you ask is probably a question of customer relationship. That is, if you were worth 633 SEK to them, they might swallow their pride and give you your original value back, if you asked nicely.