PAYMENT STANDARDS Figure 2: Why ISO 20022? Training will be
important because the flows will be different, and especially because some parts will be performed using ISO messages, while others will remain on MT
Romain Reinhard, Head of Payments and Ancillary Services, Banque Internationale à Luxembourg
+ Benefits
identified by the industry
EFFICIENCY GAINS Increased efficiencies from a standardised and harmonised format of financial messaging, increased STP rate
COST SAVINGS Potential simplification of cost intensive process, such as payment processing, investigations
DIGITAL COMPLIANCE Automated analytics for various compliance purposes (i.e. sanctions screening) based on structured performance
truncation may be necessary due to the richness of the format. Due to the imperfect nature of the translation, it will therefore be necessary to have access to both the MT and the original ISO 20022 versions of the message for transaction due diligence, such as sanctions screening, creating additional challenges for those banks continuing to use MT messages. SWIFT has understood that it needs to address these challenges, and one of the key tools will be its Transaction Manager solution. This will enable customers in a transaction to communicate in multiple formats and will be backwards-compatible with existing infrastructures. But this solution will not go fully live until March 2023, which means that the myriad challenges it seeks to fix will remain unsolved until then.
Beyond 2022 Over the last few months, all eyes have been on the industry’s readiness ahead of the 2022 migration dates, but this is just the start of the ISO 20022 story. The structured addresses ushered in by ISO 20022, for instance, will bring much-needed efficiency to payment processes. However, to start with structured addresses will remain optional in the cross-border payments space. It is expected that the market will move to structured addresses for debtor and creditor by the end of 2023. But the rules remain the same until November 2025: structured addresses are only required for ‘new’ parties
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NEW AND IMPROVED SERVICES Enhanced customer satisfaction from improved services for corporate clients, addressing biggest pain points (e.g. reconciliation)
-
Challenges identified by the industry
DATA TRUNCATION Handling potential data truncation due to the coexistence of different messaging formats
IMPLEMENTATON COSTS Significant investments and resources required until it releases anticipated benefits
STRUCTURED PARTY DATA Changing static data and getting structured data from clients to provide structured name and address information
INDUSTRY-WIDE EFFORT Industry-wide consensus (globally) of market requirements and standards required
Source: Deutsche Bank
(e.g. ultimate debtor, ultimate creditor) and highly recommended for others (e.g. debtor, creditor). By November 2025, this will be mandatory, meaning that all existing databases will have to be updated accordingly – or risk the payment being rejected. Due to the nature of the discrepancies between the go-live of ISO 20022 and the go-live of certain mandatory aspects, one focus will be on getting teams up to speed using the new standard. “Training will be important because the flows will be different, and especially because some parts will be performed using ISO messages, while others will remain on MT,” says Romain Reinhard, Head of Payments and Ancillary Services, Banque Internationale à Luxembourg. Some domestic systems also have mandatory aspects that will follow the go- live date. The Bank of England, for example, is planning to introduce mandatory purpose codes, category purpose codes, and legal entity identifiers (LEIs) for agents. These are planned to come into force by 2024 – though there is no strict deadline as yet, with the central bank keen to see how the migration itself goes first.
Work remains The benefits of ISO 20022 cannot be unlocked without hard work. For an idea of the scale of the migration, think back to the transition to the Single Euro Payments Area, or the introduction of the euro. Moreover, the impact extends beyond just core payments systems, touching everything from booking systems to embargo and know-your-customer systems, through to electronic banking, liquidity management and archiving. And ISO 20022 is not just about cash management – securities, trade finance, global markets and treasury departments will also need to be able to process the contained information and apply it elsewhere. So, as we approach the deadlines, we must remember there is still more to be done.
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