Part one of our ISO 20022 blog series looked at the factors that led to the introduction of a new common global payment messaging standard, while part two evaluated the benefits of ISO 20022 and its potential to harmonise the global payments ecosystem.
In part three, we examine the shifting migration deadline and key considerations for a smooth transition.
Adoption of ISO 20022 messaging is either planned or underway across all major high value payment systems (HVPS) and payment market infrastructures worldwide. Whether implemented in a phased approach or as a ‘big bang’ changeover, SWIFT expects that “80% of global high value payments volumes will adopt ISO 20022 by 2025.”
SWIFT had originally established a four-year period, beginning November 2021, to transition from SWIFT MT formats to ISO 20022 compliant messages (MX formats). Following feedback from banks struggling to prepare existing infrastructure for the transition, the start date has now been deferred to November 2022, allowing for a three-year transition period.
During that time, both MT and MX message formats will be supported and will coexist. After November 2025, SWIFT MT messages will be decommissioned and ISO 20022 will be the only accepted standard for cross-border payment instructions and reporting messages between financial institutions.
Shifting the deadline for ISO 20022 has been met with controversy across the industry, including that “the unexpected decision was met with surprise from institutions across the European market, which now face another hurdle in the monumental transition to the new data-rich financial messaging language,” according to Finextra.
The delay, coupled with global uncertainty due to the COVID-19 pandemic, may cause financial institutions to question how and when to move forward with their migration plans.
It’s also having an impact on other major infrastructure changes, such as the ongoing consolidation project of TARGET2 and TARGET2 Securities (T2-T2S).
In the current climate, banks are being required to focus on their core activities and prioritise resources for “frontline operational processes,” which may mean preparations for ISO 20022 are put on hold.
The decision to move the deadline back by a year has certainly caused some bumps in the road. A recent PaymentsSource article noted, “the possibility that some customers and correspondent banks will continue to use legacy formats leaves both financial institutions that move to ISO 20022, and those that don’t, facing risks.” However, it argued, “forward-thinking financial institutions are staying the course with their migration plans while ensuring they can still handle legacy message formats.”
Best Practices for a Smooth Transition
ISO 20022 has deep tentacles that will impact a wide number of bank functions, from payments processing systems to foreign exchange, treasury, billing, screening, trade finance, and other operational areas. This means that before a ‘payments nirvana’ can be achieved, organisations should be prepared for what is likely to be a troublesome transitional period.
However, ISO 20022 also presents an ideal opportunity for financial institutions to clean house – rethink internal operations, change workflows, update existing systems, replace legacy systems, and build application programming interfaces (APIs).
Careful planning can ease the transition to ISO 20022, and a best practice approach for a smooth migration should include:
- Understanding the functions and internal departments likely to be impacted.
- Securing executive level commitment to ensure the right prioritisation and resources are assigned to the migration.
- Assessing data storage capacity and data management since current systems may not be equipped to handle or process the additional data load that ISO 20022 generates.
- Identifying vendor systems and other IT infrastructure that will be impacted. Work with vendors to retool software as needed.
- Allocating adequate budget to ensure resources are available for the duration of the project.
- Testing interfaces and messages with all entities, including counterparties, customers, vendors and other stakeholders.
- Engaging third-party support as needed to manage and deploy the conversion.
- Investing in staff training and ongoing communications to ease the transition.
The migration to ISO 20022 has the potential to harmonise global payments and shape the future payments ecosystem, but this major transition is not without challenges.
One area that presents both challenges and opportunities is financial crime screening. The fourth blog in our ISO 20022 series will look at the implications of the new payment standard on compliance and how financial institutions should begin to prepare their screening operations.
Can’t wait until next week? Download our ISO 20022 whitepaper now!
The latest whitepaper from Accuity, A Guide to ISO 20022 and its Impact on Financial Crime Screening, explores the changing market dynamics that have given rise to the need for a common payment messaging standard. It takes a closer look at the benefits of ISO 20022, outlines best practices for migration and provides insight to help organisations better understand the impact on financial crime screening.