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Demo requestWhen financial institutions exchange payments, they must also exchange essential data associated with them – for example, the payment amount, currency, sender and receiver, intermediary institution details, and other important information. This information needs to be structured to be usable by a firm. Unfortunately, the standards used to structure this data – and even to determine what data to include in the first place – have historically varied among firms, creating inconsistencies and introducing friction in the payment lifecycle. Financial institutions must often translate the data exchanged into a format that matches their standard in order to perform transactions. The lack of a central standard can lead to inefficiencies – and even misinterpreted information.
ISO 20022 is a standard by the International Organization for Standardization (ISO) that helps financial institutions more reliably structure the data they exchange with each other during a transaction. It seeks to improve these data exchanges by creating a shared global standard between financial institutions to make the process clearer, faster, and more data-rich.
With this in mind, what benefits might these efficiency gains offer to firms – both at a business level and, more particularly, at the level of anti-money laundering and countering of terrorist financing (AML/CFT)?
Although ISO 20022 can be used as a common standard, it also helps firms using different standards communicate better. It’s analogous to two people with different mother tongues who share the same second language. Without that common second language, they would be forced to translate directly from a language they don’t know. They would risk miscommunicating. But with a shared second language, each party can easily communicate with the other in a mutual language they’re confident in. Later, they can each convey the needed information to others in their mother tongue.
Similarly, ISO 20022 can provide a bridge between firms that “speak” in different data standards. They are better able to communicate and less likely to make crucial translation errors. Thanks to this improved communication, ISO 20022 enables faster payments, better interoperability, less friction, and more reliable documentation.
Economist Dave Ramsden, Bank of England Deputy Director for Markets and Banking, situated ISO 20022’s benefits in the context of the “G20/FSB Roadmap on cross-border payments,” which focuses “on how a more effective use of and greater standardization of data could help to streamline AML/CFT and sanctions compliance.” Indeed, the new open data standard’s benefits have several specific applications to AML/CFT. Three key compliance areas especially stand to benefit from the standard:
Still, as Red Compass Labs highlights, better data resources like ISO 20022 can help AI mature – enhancing firms’ AML frameworks while offering use cases that encourage regulator support. By ingesting rich data enabled by the standard, AI and machine learning technologies can better inform their processes and mature at pace. (As a bonus, because the data is reliably structured, automation also stands to improve.)
Based on extensive work with worldwide implementation initiatives, SWIFT has highlighted three industry-validated best practices for firms implementing ISO 20022:
Firms seeking a more detailed guide to ISO 20022 implementation best practices can consult ISO’s 2018 whitepaper.
A significant challenge firms must consider as they plan their migration to ISO 20022 is data management. On the one hand, the enriched, structured data the new standard enables is an excellent match for automation and (more importantly) artificial intelligence and machine learning (AI/ML). This, in turn, can profoundly enhance financial crime risk management – from AML/CFT to fraud prevention.
On the other, firms must make detailed plans that will enable their applications, networks, and processing systems to support this enriched data so that their AI can use it. During the coexistence phase of the ISO 20022 migration, firms will also need to take measures that mitigate the risk of data truncation. If firms carefully map out their migration and create contingency plans, they will set themselves up to make the most of the improved data and financial crime risk management the new standard can offer them.
Firms and regulatory bodies worldwide are on track to implement ISO 20022 by 2025. Many have already adopted it – some as early as 2011. Here’s a timeline showing key adoption dates since the standard’s implementation – and highlighting upcoming migrations that will impact firms in coming years.
2004 – ISO 20022 is first introduced
Source: from NACHA guide, page 15
2011 – Japan’s Zengin Systems (bank payment clearing network) introduces ISO 20022
Source: Zengin Systems in a pamphlet
2013 – China National Advanced Payments System (CNAPS2) and India’s Real Time Gross Settlement system (RTGS India) go live with ISO 20022
Source: Fintech Futures and Federal Reserve Bank of New York
2014 – SEPA introduces ISO 20022 to its Euro-based payments system comprising 34 countries. The Monetary Authority of Brunei Darussalam (AMBD) goes live with the new standard for its RTGS system.
Source: ISO in a 2015 newsletter and Federal Reserve Bank of New York
2015 – Bank of Japan Financial Network System (BOJ-NET), whose daily transactions are estimated at USD 1.24 trillion, migrates to ISO 20022. Bangladesh Banks’ RTGS system also goes live with the new standard for its RTGS system.
Source: Citi, SWIFT, and Federal Reserve Bank of New York
2016 – Switzerland launches Swiss Interbank Clearing (SIC), which uses ISO 20022.
Source: PYMNTS
March 2023 – go-live
November 2025 – final adoption deadline for institutions
Source: “Swift, the global financial messaging network, also announced it will go live with ISO 20022 in March of 2023, but said that institutions will have until 2025 to adopt the new standard.”
March 2023 – ISO 20022 adoption
Source: The Paypers
March 2023 – live migration
Source: “In line with the modified planning for the ECB T2/T2S Consolidation project, the EURO1 ISO 20022 live migration was moved to March 2023.”
June 2022 – Pilot program for CHAPS ISO 20022 messaging
June 2023 – live CHAPS messaging migration
Summer 2024 – RTGS settlement engine goes live (with mandated ISO 20022 formatting)
Source: Bank of England
March 2023 – Migration of CHIPS Message Format Version 5
November 2023 – Full implementation (go-live?)
March 2025 – adoption for Federal Reserve’s Fedwire Funds Service
Source: “CHIPS will proceed with the migration of CHIPS Message Format Version 5 software this month in a dormant state until next March. … With the CHIPS Message V5 format work completed, the CHIPS team will be able to focus all their efforts on the tasks underway and ahead to prepare for the full CHIPS ISO 20022 implementation in November 2023.”
“The Board of Governors of the Federal Reserve System (Board) is announcing that the Federal Reserve Banks (Reserve Banks) will adopt the ISO® 20022 message format for the Fedwire® Funds Service on a single day, March 10, 2025.”
Although migration to ISO 20022 will present inevitable challenges for firms, it ultimately benefits them, the greater financial services sector, and the world that relies on those services. Aside from offering opportunities for key improvements in payment speed and interoperability, the global data standard also enables improvements in the world of financial crime risk management. Thanks to enhanced data that improves Travel Rule compliance and AML analysis, firms can expect notable improvements as the global community shifts towards greater reliance on ISO 20022.
Armed with the new open data standard and cutting-edge tools powered by artificial intelligence, AML/CFT teams can be on the front lines of proactive risk management, going beyond mere compliance to curbing and anticipating financial crime.
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Demo requestOriginally published 22 May 2023, updated 22 May 2023
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