The financial industry's landscape and roadmaps

At the occasion of the 2016 Standards Forum to be held from 26 to 29 September in Geneva, I interviewed a number of SWIFT standards experts about the content of this year's programme. As each of the four days will focus on a specific theme, my four blog posts will offer readers a sneak-preview of what people can expect to hear about.

Day 1: Landscape and Roadmaps - The financial industry's landscape looks very challenging. There are many rocky roads to navigate as we will respond to new technologies, new regulations and new business models. On the opening day of our Standards Forum in Geneva, we will help to bring the landscape into focus, help you define your destination and navigate your way through it.

1. Global Landscape and Standards Roadmap

Why are standards important in 2016? The standards community is getting ready to launch several projects, initiatives and will be facing a series of disruptions and evolutions. Can you please give us an example and offer any insights as to how the standards community should go about tackling these challenges?

Stephen Lindsay, Head of Standards, SWIFT

I see 2016 as the year people are announcing concrete plans to move to ISO 20022, both domestically as internationally. For instance, we have just passed the first wave of regulations. Looking at the current landscape, some of what we implemented may be in need of "refining", as we have to admit that it had to be put in place in a rather short time, sometimes to counter imminent threats. We must ask ourselves whether we did the right thing. Does it need corrections, shifts of focus? So that will be one priority.

And indeed, then there are a number of new initiatives coming at us, from both the regulatory and the technology side. It is clear that they will put challenges to the financial industry. Distributed Ledger Technology (DLT) and Payments Services Directive 2 (PSD2) are two examples of initiatives that illustrate the need for standards beyond messaging. [Editor's note: see also future blogpost about Standards and transformation: Business Standards in the DLT stack]

PSD2 is an EU initiative aimed at retail banking, but will likely also apply to corporates. It breaks retail banks' lock on the current account, which is their baseline product and foundation of their relationship with every retail customer. Now, other service providers – these can be other banks! – will be able to access the account and initiate payments, and the banks won't be able to stop them. Banks that move quickly can offer multi-bank services to their customers; those that move slowly can end up being disintermediated. To comply, banks will have to implement APIs to expose customer accounts to third party service providers. This will be a significant development for them. Since the banking industry is a 'system', it needs to respond to these challenges systematically and collectively. As an industry we should learn from the example of messaging and ensure that we standardise APIs so we don't end up with costly fragmentation leading to waste and unreliable services.

2. Standards SATNAV: Roadmaps through the Global Landscape

What are some of the imminent key initiatives in payments and securities that the Standards Forum audience will want to hear about?

Karin De Ridder, Head of Standards Development, SWIFT

On the payments side, real-time payments are a very hot topic. Various groups, such as the ISO 20022 Real Time Payments Group (RTPG) and the European Payments Council (EPC) are working on setting a global, real-time market practice. A first set of the ISO 20022 RTPG guidelines have been published on MyStandards. The ISO 20022 high-value payments systems (HVPS) market practice is also available on MyStandards. A new task force called HVPS+ has been formed, which will build on the existing HVPS market practice documented in MyStandards. This new group, which goes beyond current market practice, will deliver an additional set of ISO 20022 market practice guidelines for high value payments systems, taking into account the evolving needs of Market Infrastructures (MIs) and their members, including more structured, accurate and richer end-to-end data.

In the securities market, we have seen an increase in regulation, as illustrated by CSDR regulation, MIFIR and MIFID II reporting, for which ISO 20022 messages have been developed. There is also SFTR (Securities Financing Transaction) regulation while the T2S migration is ongoing.

We will have speakers representing these and other initiatives and I am very sure the audience will be interested to hear from them.

3. Official Opening: Standards bodies discuss their roadmaps

The landscape for standardisation is changing – there are new use cases for standards that will impose additional requirements on them, and there are new consumers of standards that will probably have another set of impacts... What do standards bodies see on their horizon, and how are they planning to respond?

Jean-Marie Eloy, ISO Relationship Manager, SWIFT

Two trends seem to materialise:

One is the consciousness to adapt to future needs, as made possible by new technologies. Standards bodies are investigating new technologies and opportunities, such as Distributed Ledger Technology (DLT) and Fintech initiatives. For instance, ISO received an Australian proposal to set up a Project Committee under the existing ISO structure to look at Blockchain (DLT) technology.

A second trend is to re-structure existing technical committees to better address evolving needs. As an example, ISO/TC 68 is discussing a possible re-structuring to be ready to face future industry challenges. The group also created an advisory group for FinTech where Blockchain technology for financial services will be discussed.

4. Standards and Regulatory Reform

We will have a number of speakers talking about market and regulatory reform initiatives at the Standards Forum. Could you please offer us a peek into some of the key ones and what kinds of implementation challenges they will pose to implementers?

Paul Janssens, Programme Director, SWIFT

In Europe, regulators have opted to use an established market standard, i.e., ISO 20022, as technical standard, as opposed to bespoke implementations. It is fair to say that ISO 20022 adoption is a fact in Europe. New ISO 20022 messages are being readied for regulatory reporting and need to be implemented now.

So what is needed for that to happen and what are the challenges? Implementation challenges are in large part related to classic industry "silos". In many organisations, operations (including standards) and regulatory reporting do not inhabit the same planet. Reporting glitches can cost organisations lots of money. Hence, they are allotted budgets surpassing many times those that operations departments typically get. If regulatory reporting and operations teams would join forces, this could go a long way in getting rid of "silos". For instance, some of the structured data used for regulatory reporting could be used for operational purposes, making this advantageous for both parties. And since we are talking about structured data, this is something that should be fairly easy to accomplish. Regulatory reporting is sometimes seen as a compliance "tick-box". But if rather than implementing a tactical solution, a more strategic review would be envisaged, this could bring business benefits offsetting the implementation costs.

Non-ambiguous clarity as to what has to be implemented is absolutely necessary, meaning based on the ISO 20022 financial dictionary and a harmonised implementation approach, as defined in the principles of the ISO 20022 Harmonisation Charter [Editor's note: see also future blogpost about Standards and Initiatives: ISO 20022 Harmonisation Programme]. If a sender uses standards, this also means that standardisation reaches the receiving end, so there are benefits for both sender and receiver! Hopefully, the ISO 20022 standard will be used more at international level.

Some of the important objectives for the regulators have always been data protection, transparency and risk management. To achieve this, data should be exchangeable and comparable between regulators. A USD/EUR deal has a leg in the US and one in the EU, so regulators at both sides of the Atlantic should be able to interpret data and make meaningful data comparisons. Applying industry standards such as ISO 20022 across the board will help achieve these objectives.

At the Standards Forum, a European Securities and Market Authority's (ESMA) representative will address the EU's MiFID and MiFIR regulations as well as Emir and Securities Financing Transaction Regulations (SFTR), which are all adopting ISO 20022. A speaker from the Committee on Payments and Market Infrastructures's (CPMI) Working Group on Correspondent Banking will address the recommendations for usage of standards in compliance and in the payments market.

5. SMPG and PMPG roadmaps

Representatives from the Securities Market Practice Group (SMPG) and Payments Market Practice Group (PMPG) will share their roadmaps on how they plan to take on new technologies, new regulations and new business models. What are some of the highlights we can expect to hear from them?

Karin De Ridder, Head of Standards Development, SWIFT

On the SMPG side, ISO 20022 market practices equivalent to the existing ISO 15022 market practices are available in MyStandards for Settlement & Reconciliation, and are also being developed for ISO 20022 Corporate Action messages. A set of ISO 20022 collateral management market practices for Central Counterparties (CCPs) is also available.

The PMPG developed market practice for use of ISO 20022 Remittance messages in support of cross-border payment processes. An information paper on the use of the Legal Entity Identifier (LEI) in payments messages is currently open for industry feedback and will be released before Sibos. During the Annual PMPG Forum held at Sibos, the following topics will be discussed: ISO 20022 global adoption, ISO 20022 real-time payments, AML/financial crime, LEI and the CPMI/IOSCO report for correspondent banking.

People who would like to hear more about how these two important industry bodies' roadmaps are shaping up can hear directly from SMPG and PMPG members at the Standards Forum.

Please read the other blogs in this series:

2. Standards and transformation

3. Standards and initiatives

4. Standards are more than messages