ISO 20022 is a global financial messaging service that aims to standardise payment data and improve machine readability. A global approach will create a unified language between institutions and create a faster financial processing service. This implementation will take a phased approach over the next five years, with the first deadline due in November 2022. We take a look at what firms need to do now.
The new standard will allow for instant payments, rich data and continuous processing to increase the quality and security of payment processes. Firms must adopt this standard to meet regulatory compliance for Bank of England requirements for CHAPS payments processing, cross border payments and TARGET2. This progression will support businesses by offering streamlined access to the payment process and allowing firms to innovate complete transaction sequences for securities, payment and trade transactions through a more efficient global network infrastructure.
Adopting the ISO 20022 standard will not be easy for firms and introduces a wide range of technical challenges. This includes the interaction with SWIFT, which requires all firms to adopt ISO 20022 by November 2022 to support network connectivity and ensure the ongoing provision of services. It could also have an impact on market infrastructure, which could boost competition and drive innovation. Additionally, the implementation will affect the target operating model and require significant changes to the MS messaging interface. With the five year implementation process in mind for implementation, firms must start their change programs now to stay ahead of the curve and continue to meet regulatory expectations.
The deadline for ISO 20022 implementation was pushed back a year due to COVID-19 and many firms must juggle competing priorities to meet this new date. Perhaps the biggest challenge will be upgrading legacy systems to support the new ISO 20022 framework. This includes identifying their impacted payments flows and mapping out the full lifecycle of the business process, interoperability and improved data storage to align with the new standard.
ISO 20022 provides richer data to firms and establishes more secure payment information and customer data to inform business strategy and maximise security procedures. To aid this, firms will need to identify how their solutions will handle the risk of data transaction and integrity as they step up or step down, and to achieve end to end testing. This process will be improved by considering the value opportunity of high-quality data and looking beyond compliance standards.
In order to be prepared for the upcoming changes in the five years implementation process, firms will also need to talk to correspondents and their users to determine strategic options and ensure their systems are up to date.
ISO 20022 will require firms to implement a sustainable payments framework. This will include large scale changes that are complex, resource heavy and potentially slow to implement. Getting started now will help firms meet those challenges and maintain regulatory compliance.
Contact Paul Olukoya for more information.