Central Banking Market Infrastructures move to ISO 20022

Real time gross settlement (RTGS) has now become the established mechanism by which country and sometimes regional payment infrastructures enable safe settlement of high value payments between banks. Historically the systems have typically used the SWIFT network for the secure transfer of the payment messages and notifications, etc., with the SWIFT MT FIN messages being the format used, and having been successfully deployed in numerous countries around the globe.

However in the last few years ISO 20022 based financial messaging has become significantly more widely adopted in a variety of market infrastructures perhaps most notably as part of the SEPA European payments ecosystem but also in newer Real Time Payments infrastructures, for example Singapore’s G3. Even in the well-established card payments world, ISO 20022 message standards comparable to the traditional ISO 8583 based messaging are now being implemented.

This move to ISO 20022 is now rapidly moving to the central banking world with numerous countries actively looking at adoption of this format.  Indeed a number of countries have implemented or are deep into the process of implementing ISO 20022 as the basis for their RTGS systems e.g. Japan, Jordan, Bangladesh and South Africa to name but a few. (It’s worth noting that the Eurozone TARGET2 system has recently announced a delay to its planned move to ISO 20022 in Nov 2017 in light of concerns raised by Eurozone banks).

Despite more regulatory and technical compliance costs for banks this must be viewed in the long run as a welcome move, as global organisations look for increased interoperability between payment systems and a general adoption of a consistent financial messaging format.  Coupled with an increased adoption of ISO 20022 data rich formats in the Corporate treasury space, for Payments, Cash Management, EBAM and now Bank Services Billing you can start to see, albeit slowly, the formation of a global standardisation in the wholesale payments business.

From our experience one request we would make is that the central banks or regulatory authorities engage early with all the key parties to help define the particular local implementation guidelines and the ISO 20022 formats to be adopted. A recent report on ISO 20022 implementation best practice by consultant group Lipis Advisors highlights this very point. This may seem like a statement of the obvious, and certainly early stakeholder engagement and consultation is happening for many planned migrations to ISO 20022, for example as we are seeing in Canada and the US, but this is not the case for all.  

Help is out there - the PMPG group has published guidelines on best practice for infrastructures looking to adopt ISO 20022 message standards, and very recently at this year’s SIBOS meeting a group of 12 major market infrastructures around the globe have teamed up with SWIFT to launch an ISO 20022 Harmonisation Charter with the aim of promoting common guidance on the implementation of ISO messaging in CSMs, a subject on which I blogged earlier in the year.

As can be seen clearly seen at SIBOS, the pace at which ISO 20022 is being adopted in the payments space is hotting up and thus in conclusion and from our experiences, for successful projects it is vital that early engagement with key bank stakeholders is undertaken to ensure that there is agreement on;

• Early consultation and collaboration in the design of the new standards to be adopted – assessment of the impact on banks implementing the new standards – what services can be created to help migrate banks?               
• Project timetable with clearly staged implementation milestones and agreed success criteria for each stage for the migration – including clearly defined processes for fall back if necessary
• Strong Programme Governance and with clear leadership, defined responsibilities for all parties, particularly during testing phases and a clear (and immovable) deadline to be adhered to

Much of this is established programme management practice but it’s worth reiterating for such major projects. To those Central Banks embarking on this journey – good luck!