Banks around the world are looking closely at what they need to do to move to the ISO 20022 messaging standard and how they will do it. The time to prepare is now. Banks must understand the scope of changes, communicate the value of those changes internally, establish governance, organise project teams and plan for the change in upcoming years.
As the registration authority for ISO 20022, Swift has spent the last few years working closely with its community to secure consensus on how the new standard will be used in the context of financial institution to financial institution payments and reporting. The market practice will be in place in early 2020, and the community is starting its implementation phase.
“The community has spent a lot of time getting to consensus on how ISO 20022 should be used in FI to FI payments, in alignment with high-value payment system practices,” says Sheikh. “The key payment specifications have recently been published on the MyStandards portal, and through a series of webinars and workshops we are now working with banks to make the necessary preparations for implementation.”
Countdown to implementation
The timeline has been agreed, with adoption starting in November 2021 and being completed by 2025. All financial institutions must be in a position to receive and process payments in the new standard by November 2021. Those institutions acting as key intermediaries when required for compliance must also be able to send ISO 20022-based payments, passing on the rich originator and beneficiary party information they receive. Swift is supporting the community with a new many-to-many network service supporting the new standard, and a set of translation services for those institutions not able to process ISO 20022 from day one.
A key first step being recommended by Swift is that financial institutions should map out and assess the impact to their payment processing applications and business units. Typically core banking, payments middleware, screening, reconciliation and interbank channel infrastructure will be impacted and should be part of the change roadmap.
In November 2021, international payments on ISO 20022 will go live. Since the beginning of this year, Swift has facilitated a working group of major banks called the Cross-Border Payments and Reporting Plus (CBPR+) market practice group. In July 2019, this group published its first set of core payments clearing and settlement usage guidelines that will be implemented in coming years. The work of this group is aligned with that of a similarly convened group of payment systems providers called the High Value Payments Systems Plus (HVPS+) market practice group, which looks to define best practice in the use of ISO 20022 in high-value domestic payments. These groups are essential to ensure consistent and aligned use of the standard when international payments bridge into domestic payment systems.
Richer, more structured data
The key to this is the way that ISO 20022 allows rich, quality data to be transmitted between banks. Currently, international payments are limited in structure and space. For example, the current MT 103 Single Customer Credit Transfer is limited to 16 characters when transmitting a sender’s reference, while ISO 20022 accommodates four types of unique references, each accommodating 35 characters. Allowing this information to pass from end to end, from originator to beneficiary, enables accurate and efficient processing, while facilitating new and differentiated services for clients.
Between November 2021 and November 2025 there will be a four-year co-existence period for the new ISO 20022 and legacy Swift MT standards in international payments. This will ensure that those banks that are not ready to process messages in ISO 20022 will still be able to process the underlying transactions using the old format. Key to enabling this is a set of translation services that Swift will provide.
“New API, in-network and on-premise translation solutions will support those customers who want to take a phased approach to adoption of CBPR+ compliant ISO 20022 message standards,” says Sheikh. “Swift will enrol all customers in a new many-to-many network service supporting the new format and will provision with required translation services. This will ensure a smooth transition to new formats and flows.”
The right solution at the right time
The introduction of ISO 20022 will also help banks operate in the new context of open banking and application programming interfaces (API). Indeed, the migration to open banking and API development will be enhanced by the use of ISO 20022. It is a solution whose time has come. The many problems that banks face – from low interest rates to nimble new competition and increased regulatory scrutiny – cannot be solved in one fell swoop. But the migration to ISO 20022 is a hugely important step in making them ready to operate in this brave new world.