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International messaging standard ISO 20022 is more than just a compliance issue. Its adoption could open the door to new opportunities which can help to streamline compliance, experts say.
Speaking at a recent webinar on payments modernisation, Domenico Scaffidi, vice president of global industry and regulatory affairs at Volante Technologies, said that financial institutions needed to see ISO 20022 as more than just a standard.
“ISO 20022 is not only a new standard but is more a new mentality, a new way to bank, new data aggregation, a way to manage liquidity, and information that is going to travel together with the payments.
“That is a new opportunity for new services that banks can offer to their corporates.”
Although regulators are behind the increasing adoption of the messaging standard, big demand is coming from banks’ corporate clients because they understand the benefits they can obtain from it, Scaffidi noted.
As payments continue to modernise throughout the world, more and more new payment systems are built to support the ISO 20022 messaging standard. VIXIO’s review of 61 instant payments systems around the world found that around two-thirds supported ISO 20022, with non-supporting systems, such as UK’s Faster Payments, primarily being older. In the UK, ISO 20022 will be a key feature of both the New Payments Architecture (which will replace Faster Payments) and the Bank of England’s Real Time Gross Settlement (RTGS) Renewal Programme.
Governments are encouraging the adoption of the standard to support greater international standardisation. For example, the recent Nexus initiative from the Bank for International Settlements (BIS) and the Monetary Authority of Singapore (MAS) has produced a blueprint for connections between multiple payment systems to make instant cross-border transactions possible. It recommends ISO 20022 as a key design choice to future-proof domestic payment systems for cross-border payments.
Despite many payment systems being built to support ISO 20022, many financial institutions and corporates are not ready to adopt it. Banks find the cost and trouble involved a daunting prospect, so they have been reluctant to invest in this major and potentially disruptive standard. Urgency to transform has been softened by the fact that service providers can often include a translation layer to support the banks’ existing message standard. Although this solves a problem, it means that banks cannot fully benefit from the opportunities that ISO 20022 offers.
VIXIO payments industry expert Andrew Neeson said: “Several major institutions and central banks have begun to mandate the adoption of ISO 20022. SWIFT is mandating that all financial institutions be able to send and receive ISO 20022 CBPR+ compliant messages for cross-border payments by November 2025. The SWIFT announcement that it was going to delay initial migration to ISO 20022 by a year starting November 2022 due to Covid-19 has had a big impact on other planned migrations. Shortly afterwards, the European Central Bank (ECB) announced a similar delay to November 2022 for Target 2 migration to ISO 20022 and the EBA Clearing decision to align its EURO 1 and STEP 2 migration.
“Historically, payment messaging standards have typically evolved through localised needs and are often proprietary to the payment system. This means that in some markets, banks will have to deal with multiple messaging standards across each of the payment systems they participate in. ISO 20022 is different.
“It is a common language for payments data across the globe, enabling greater harmonisation and integration across different payments systems, both domestic and international. Its extensible message set means it can be adapted to and support new payments innovation and types, meaning it can evolve and grow with the market.”
ISO 20022’s data-rich structure helps banks and their end-users to solve many problems. It makes them more able to provide straight-through processing by aligning and integrating the messaging standard with bank and corporate core systems. Additional data in each message can also support automated reconciliations, make banking systems more resilient and give banks better insights into the data.
Neeson continued: “For compliance officers, the big advantage is that ISO 20022’s richer data, consistent structure and ability to include additional and complementary information helps provide more detailed and complete data on the payment and parties. This means that financial institutions can both improve and reduce the cost of their compliance procedures, helping reduce false alarms and improving sanctions screening, AML and fraud monitoring. In short, ISO 20022 is a good weapon in the fight against crime.”
