5 strategic considerations in meeting ISO 20022 compliance

By Tareq Shaheen, PDM Director, Payment Solutions at Eastnets

ISO 20022 significantly improves the quality of data across the payments ecosystem. It offers richer, structured, meaningful data and will enable new client experiences, while improving compliance and efficiency.

And 2022 will be a big year for ISO 20022 adoption. As of November, SWIFT will enable ISO 20022 messages for cross-border payments and cash reporting. This gives any financial institution the option of sending ISO 20022 messages.

ISO 20022 messages that will be active on SWIFT are defined by the Cross-Border Payments and Reporting Plus (CBPR+) specification, which explains how ISO 20022 messages will be used on the SWIFT network and which message categories are included. CBPR+ scope includes categories 1, 2, and 9: used for customer payments transfer; financial institution transfer; and cash management status messages and bank statements. The ISO 20022 messages included in CBPR+ will completely replace category 1, 2 and 9 MT messages by November 2025.

As ISO 20022 on the SWIFT network is not mandatory, an FI can continue to send SWIFT MT messages to their counterparts, after November 2022. However, every SWIFT member institution must be able to receive and handle ISO 20022 messages defined by CBPR+. This caveat means that all FIs must be prepared for ISO 20022.

The ISO20022 journey: from SWIFT MTs to ISO 20022

Some financial institutions have already started their ISO 20022 journeys. But the financial sector is heavily regulated, and successful implementation of new or updated standards and regulations means that it is vital to have a robust compliance strategy in place. Having the right strategy for ISO 20022 fulfillment facilitates compliance with the evolving requirements for ISO 20022.

Being ISO20022 compliant is not just a tick-box exercise. It has benefits for any FI that meets ISO20022 requirements.

Five considerations when developing an effective ISO20022 strategy

When developing a robust ISO20022 strategy you must consider several key areas that are impacted by the standard. Below, we discuss five of the most important factors to consider:

Comprehensive translation solution

A comprehensive solution for translation between legacy message formats and ISO 20022 is a vital foundation stone of ISO2022 implementation success. Look for the following baseline functionality when choosing this type of solution:

• Legacy formats will persist for some time: CBPR+ only covers three categories of SWIFT messages (1,2, and 9). Other categories will continue to use the MT format. Whether it is payment networks or internal applications, not all will be ready for ISO 20022 prompt adoption.
• Ideally, the solution will offer ongoing interoperability across the different payment networks that will use ISO 20022 implementations, i.e., national (RTGS, ACH), Regional (SEPA in Europe, BUNA Middle East), and Cross border payments (SWIFT)
• As ISO 20022 continues to evolve, the solution must be future proofed for ISO 20022 changes as they occur (e.g., CBPR+ annual update)
• An ISO20022 native solution will make it easy to adopt new ISO 20022 requirements as they are published.

The translation solution should have ready message definitions and mapping libraries for different ISO 20022 specifications to avoid tedious messages and mappings definitions.

Gradual adoption and familiar experience

Business users have used legacy formats, such as MT format, for decades. MT format is well-known by end-users and it will take time to get used to ISO 20022. This situation has been built into the SWIFT strategy that allows for three years of coexistence period between MT and ISO 20022. Therefore, it is important to provide end-users with an interface that shows original and converted messages clearly and unambiguously, while providing functionalities that realize the value of ISO 20022 rich message fields. Here are some important solution functions:

• Support for familiar user experience – like MT messages, at least in the early adoption stages.
• Offer different display options for ISO 20022: simplified display, expanded form, MT equivalent view.
• Flexible search criteria: structured and free text search on a string in the body of any ISO20022.
• Work, seamlessly, with live and archived ISO 20022.

Risk Mitigation

As with similar major initiatives, FIs should consider mitigating risks associated with such a change. Risks include:

• An ISO 20022 message has extended rich data compared to MT; therefore, expect and mitigate the effects of data truncation by using a long-term solution to preserve truncated data with zero loss. This is important for audit, compliance, and reconciliation.
• Assess your payments duplicate messages detection solution readiness for ISO 20022 messages.

Analyze and learn

It is recommended that organizations have dashboards that visibly differentiate ISO 20022 and MT messages traffic to allow for improvements in the ISO 20022 payments workflow as the ISO 20022 traffic starts to grow after November 2022.

Leverage ISO 20022

The previous sections describe how financial institutions can comply with ISO 20022 payments messaging. Whilst this is a mandate from SWIFT and other bodies, a more proactive approach is to leverage ISO 20022 rich data to develop better payments. Achieving this requires a collective effort with the participation of every financial organization. This is a two-step process:

Step one: populate the new fields in the ISO 20022 payments messages with the needed information on the side of payment initiators before sending them to their correspondents. For example, ISO 20022 provides many fields to for debtor details in the credit transfer message (Street Name, Building No, Town Name, Post Code, Private Identification, …) so each FI should fill those fields with the needed information.

Step two: leverage ISO 20022 in the different processes and workflows inside financial organizations such as payments screening.

Screening payment messages against watchlists can benefit from ISO20022’s richer and more structured data format. The elimination of free text blocks and the ability to define fields that can be scanned at a highly granular level will result in the reduction of false positives.

It is important to notice that payment message scanning should be done in its native format and not the translated message to fully realize the benefits. The same applies to fraud detection, where higher quality data messages data will enhance irregular payments detection. A further benefit is the enablement of new services for FI customers, by leveraging ISO 20022 extended data and exposing it through different banking channels.

The golden opportunity of ISO20022

ISO 20022 is another major change in the payments arena. However, it offers a golden opportunity to enhance how payments operate. In a world of instant payments and escalating payments fraud, we must take this opportunity and build upon it to reduce fraud, enhance compliance and build a better more robust payment infrastructure.