Keeping up with ISO 20022 adoption and migration

by Paul Olukoya, managing director of payments, cyber and data at Grant Thornton UK LLP

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What is this article about? ISO 20022 is the new standard for high-value payment systems from November 2022.

Why is this important? Payment firms need to ensure their systems are ready.

What’s next? Data strategies need to be reviewed and firms need to use the initial implementation challenges to create a roadmap to 2025.

ISO 20022 is becoming the new global language for payments and cash management messaging. Paul Olukoya, managing director of payments, cyber and data at Grant Thornton UK LLP, offers his tips to overcome the implementation challenges that firms are facing.

ISO 20022 will become the de-facto standard for high-value payment systems for reserve currencies and is already used in over 70 countries. Globally, financial institutions are identifying payment journeys, processes and underlying IT architecture to build capability, allowing the processing of SWIFT cross-border payments and reporting (CBPR+) messages.

Key dates for ISO 20022 implementation

The advantage of ISO 20022 is that it supports secure and rich payment data, enabling straight-through processing, and a range of possibilities via the intelligent use of enhanced structured data.

Until the end of 2022, MT payments will remain the commonly used format for cross-border payments. However, firms need to use this time to prepare back-office systems for native ISO 20022 support.

It is important that firms have an independent expert review of their overall payments landscape and understand how to build a cost-effective and successful implementation for November 2022. This is crucial for establishing confidence in the quality of the migrated system and verification of the business-identified processes and flows.

CBPR+ is scheduled to go live on 21 November 2022 and all financial institutions must be capable of receiving ISO 20022 format messages from this date. In addition, they must continue to support SWIFT MT and MX payment and non-payment messages until November 2025.

In a big bang approach, the EuroSystem Single Market Infrastructure Group (ESMIG) is adopting ISO 20022 for all its payment and non-payment journeys from 21 November 2022. Directly participating financial institutions must have the capability to manage ISO 20022 ESMIG compliant payments from that date.

The Bank of England is adopting ISO 20022 for the UK high-value payment system (CHAPS) and low-value payment systems (BACS, FPS). CHAPS will migrate to ISO 20022 in April 2023, with domestic payments scheduled to migrate between 2023 and 2025.

Challenges to adoption

Financial institutions and corporates face several challenges in adopting ISO 20022, including:

  • Interoperability: Payment journeys involving multiple financial institutions (FIs) at different levels of implementation may result in issues with payment data exchange, i.e., missing, or truncated data transmitted between the party agents.
  • Sanctions and compliance checks: The proposed solution on handling missing and truncated data may require FIs to build non-STP processes during the co-existence phase for compliance checks.
  • Identifying impacted payment journeys: FIs face the complex task of scoping and descoping impacted payment journeys built up in their operations over several years.
  • Maturity and effectiveness of the transformation and deployment lifecycle: The ISO 20022 journey cuts across multiple internal and external stakeholders, which require a mature framework for communication and deployment of people, technology and processes.
  • Testing: Availability of support in the form of Test Sparring Partners, Bank of England and Target 2 simulators may offer limited capabilities for a complete suite of testing inbound/outbound capabilities. In addition, there are multiple challenges to ensure adequate functional and non-functional testing of internal and external interfaces, end-to-end, cross-impact transactions, and application testing. It’s important to note that acceptance testing levels will comprise several phases covering varied market infrastructure groups (MIGs).

Mitigating the challenges

Firms can mitigate the challenges of adopting the standard through a number of actions. For example, companies can adopt strategies that prioritise implementation in line with market infrastructure (Target2, CHAPS), ISO 20022 go-live schedule and use payment volume by currency to plan ISO 20022 migration.

It is also worth defining strategic and/or tactical solutions to enhance processes and systems with capabilities to handle structured and enhanced (EG structured address, remittance information or purpose of payment, etc.) data sent and received in the ISO 20022 message.

Firms should also review the SWIFT published Data Integrity and Market Practice guidance on interoperability (MT/MX) for payments with missing or truncated data. This can be used to develop a solution that addresses the firm’s risk appetite for accepting and processing payments with missing/truncated data.

Finally, testing is essential. Prepare a test strategy that examines the firm’s IT capability to process payments, utilises the ISO 20022 message simulator support offered by MIGs and takes advantage of support/engagement from other friendly banks for end-to-end testing capability.

Beyond the 2022 milestone

As the banks gear up for ISO 20022 implementation in Target2 and CBPR+ inbound (Nov 2022), with CHAPS in April 2023, it is important that they are adopting an agile delivery model to manage the stages of ISO 20002 implementation over five years and across multiple countries. Many payment market infrastructure groups have published their respective standards aligned to CBPR+ release, so it’s crucial to identify a key subset of prioritised MIGs.

Once banks hit the 2022 milestone, it is also important that they review their data strategies and are prepared for the challenges that are likely to occur during the process of implementation. After acknowledging the learning curve to come after the November 2022 deadline and adopting the new payment scheme, banks must also keep an eye on their respective domestic schemes, specifically upgrading their infrastructure to move to ISO20022’s latest set of payment message standards, such as FPS/BACS.

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ISO 20022 is set to redefine global payments standards, with Paul Olukoya offering key insights on navigating its impending implementation across various countries and financial systems, underscoring the necessity for financial institutions to adapt their processes and IT infrastructure for enhanced data handling and compliance by November 2022. Join The Payments Association to read the full article.

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