Why companies have to seize ISO 20022 with both hands

Published : 3 years ago, on 24/06/2021

By Simon Tatam, Head of Treasury, Mansion House Consulting

After what seems an eternity, ISO 20022 is now looming large on the horizon and the time is now for SWIFT participants to consider their approach to its adoption. For those not in the know, at the very core of ISO 20022 is enriched data standards enabling consistent data collection and tracking that will impact many areas within financial institutions. These include benefiting payments, securities, transaction banking, treasury, risk management, operations, financial crime and AML, technology and product development.

However, there remains a degree of inertia from financial institutions outside of tier 1 firms in commencing their journey towards ISO 20022 adoption. Part of this inertia comes from a fear of the challengers in this adoption such as potential changes to legacy systems, processes and operating models to making sense of the enriched data and understanding what business value can be attained. In addition, migration deadlines have been understandably impacted due to the pandemic. All of this means that many institutions are focusing on the challenges and are yet to consider the business benefits that can be derived from accepting ISO 20022 standards. For challenger banks it is particularly important that they lean in and are not left behind by their main and incumbent competitors.

As with all new processes, there are significant benefits along with these challenges arising from the implementation of this highly flexible framework. For financial institutions, embracing the migration in a phased manner should deliver significant value across business and technical areas, specifically:

Increased Operational Efficiency and Automation

The implementation of a standardised approach to messaging formats ensures that there is a repeatable consistency to operational processes and procedures. This enables a financial institution to drive efficiencies and cost savings from automated and streamlined settlement and reconciliations processes.

Enhanced Financial Crime, AML and Sanctions Screening Processes

The standardised nature of the ISO 20022 message structure allows greater granularity of payment information and provides detailed country and payee data, allowing risk and compliance teams to better understand where a payment has originated and its destination. In an increasingly global world, this is more important than ever. While ordinarily many payments that would be flagged by a sanctions filter, triggering an investigation are now automatically processed without delay. Risk and compliance are able to focus on genuine queries and not ‘false positives’. This comes with the added benefit that staff members are able to now focus on more challenging and interesting tasks.

Improved Cash and Liquidity Risk Management

This increased granularity in payment data, coupled with faster payment processing and reconciliations provides better visibility of payment traffic inflows and outflows. Treasury functions will have enhanced visibility over cash and near real-time perspective of liquidity flows, providing stronger forecasting capabilities. This means financial services organisations can better manage and control their liquidity by adopting an agile approach in responding to changes in their liquidity profile.

Rapid Data Analytics

Data is a valuable commodity in all institutions but especially a financial one. In order to realise it’s value it needs to be consistent, structured and standardised – precisely what ISO 20022 delivers. The enriched data will allow financial institutions to deliver a faster and improved service to its customers and develop new, tailored products based on analysis of customer behaviours.

What are the next steps?

It does not need to be a challenge that many fear it to be, in fact with the right partner it can be a smooth and easy process. Mansion House Consulting considers three differing approaches to an ISO 20022 migration project – Strategic, Tactical and Outsource – each of which has a different business impact and timing for delivery depending on the needs of a specific organisation. However, the start of the process is the same. We begin with a detailed assessment of the current state of data and data architecture. This ensures that the most favourable decisions are made with respect to the decided migration approach and that it is aligned with business requirements.

ISO 20022 is unquestionably a significant step forward in financial messaging. There are significant business benefits for financial institutions, yet with some key challenges that need to be considered. Coupled with the mandated deadlines, this means that SWIFT participants need to embark upon their migration journey to the new standards very soon, if they have not started already. By focussing on the positives and beginning the migration process as soon as possible it can be a beneficial change for all companies in the financial services and build the foundations for a bright future post-COVID.