Introduction to ISO20022

The long-awaited update to ISO messaging standards, ISO20022, is coming. Whilst ISO20022 isn’t going to be an enforced mandatory messaging standard for the securities sector, as it will be for cross-border payments (by the end of 2025) and derivatives transactions, we are now in a period of coexistence with the old MT format and the new. Do you have sufficient experience and technical know-how in-house to make the necessary changes? Have you considered how you will generate and support both message types for your clients?

The critical implementation dates for the migration, to keep in accordance with the industry move are summarized as follows:

• Eurozone go live date was 20th March 2023
• US migration will be in November 2023 for the clearing house and March 2025 for the FED
• Some parts of Asia are already in the process of implementing ISO20022, including Japan, China, and Singapore

 

Benefits of Migrating to ISO20022

Adopting ISO20022 potentially brings lots of benefits to financial organizations. It can help organizations improve their financial operations, increase efficiency and automation, and enhance their ability to interact with a wider range of counterparties.

By using ISO20022, organizations can reduce manual processing and increase the straight-through processing of financial transactions, as it enables the automation of many payment-related processes. In addition, ISO20022 provides a consistent and standardized format for financial messages, which can reduce the time and effort required to process payments and reconcile accounts. Thus, it results in reduced costs, improved processing times, and increased accuracy.

ISO20022’s unique feature of data format and quality allow it to be accepted by a wider range of counterparties. ISO20022 messages with the feature of enriched and standardized data will provide organizations with greater visibility and insights into their financial transactions. With the embedded security features, such as digital signatures, ISO20022 can help to protect against fraud by ensuring the authenticity of financial transactions.

 

Challenges of Implementing ISO20022

There will be multiple challenges involved with implementing the new ISO20022 messaging standard that firms need to be aware of and sufficiently prepared for.

There will be implementation costs to firms to implement the new standard. These will include but are not limited to a Swift membership cost and a cost of updating or adding translation service to back-office systems to be compatible with ISO20022.

On top of the financial costs, there may also be complex standardization challenges with implementing ISO20022, such as the possibility that various implementations of the standard could diverge and lead to firms having to support multiple dialects of the ISO20022 language. Banks may also have to support both legacy and new message formats for a period whilst other firms migrate.

There could also be complicated challenges with the data itself that need adequate risk mitigation, for example, the potential for loss of data when updating back-office systems will need to be managed for ISO20022 implementation. Also, the new XML messages are far larger in size compared to Swift (for global payments) and other payment message formats which means firms will need to increase data storage infrastructure.

How to Successfully Implement ISO20022

Firms need to ask themselves whether they are prepared to move to ISO20022 XML messaging standard and whether a consultancy firm such as Quorsus could help manage a firm’s path toward successful adherence to the industry standard. Successful implementation will require multiple key considerations and preparations.

Clear communication is key to successful implementation. This includes ensuring that relevant stakeholders are aware of all impacted domains from the start of implementation. Banks migrating to ISO20022 standard should reach out to customers and communicate the changes so they understand how the change will affect them and their day-to-day business.

It is also important to be aware of the timeframes of ISO20022 availability and adoption dates.  The migration to ISO20022 is taking place at different speeds in different markets.  The US will not make the full move until November 2023 (clearing house) and March 2025 (FED) whereas the Eurozone has already started using it. Companies with clients in different jurisdictions may have to support differing adoption timelines.

To make the transition a little easier, Swift provides useful information on how to successfully implement ISO20022 on its website. This includes emphasizing the necessity to understand the impact on operations and compliance teams when implementing ISO20022 and highlighting that the first key activities are 1) to promote awareness of the change internally utilising Swift resources such as webinars, and 2) support the implementation phase with solo and community testing before either gradual or big bang go live.

How a Financial Consultancy Firm could help

We can assess readiness and perform gap analysis on existing businesses to ensure that clients are prepared for the upcoming changes. Our experts can also provide oversight of a firm’s system upgrades, for example upgrades to back-office systems to support the new messaging format, and provide insight from the industry, to maximise efficiency of a firm’s post-trade processes and ensure clients are aware of available technology in the market to aid with ISO20022 implementation.

We can also help with overall operating model, looking into additional operational considerations and industry change for global participants. For example, a consultant team can investigate the dependencies on ISO20022 messages for cash movements, future proofing clients’ systems when implementing T+1 globally.

There is still time to ensure adequate adherence to the new messaging standard and to keep up with other players in the financial market. Contact our team of industry experts for more information on how we can help your firm navigate the ever-changing landscape of financial services.