The Canadian economy depends on the exchange of billions of dollars each day. Payments Canada’s payment clearing and settlement infrastructure, including the associated systems, bylaws, rules and standards, is integral to that process. To support the economy’s
ability to keep pace in today’s digital world﹘with shifting consumer and business needs, evolving global competitive pressures, and new technologies - Payments Canada, a public purpose and non-profit, are modernising its payment infrastructure. In March 2023,
a major milestone in this modernisation program was achieved: The introduction of ISO 20022 to Lynx, Canada’s high-value payment system.
ISO 20022 is an international messaging standard or common global ‘language’ for payments that will allow richer structured data to travel with each payment. This standard is fundamental to Canada’s new and improved payment systems and a key component of
Lynx.
What is Lynx?
Lynx is used by participating financial institutions to safely send wire payments on behalf of their customers in Canadian dollars. Designated by the Bank of
Canada as a systemically important payment system under the Payment Clearing and Settlement Act, Lynx is critical to Canada’s economy. Not only to settle time-sensitive and typically large-value payments, but also as the key mechanism by which the Bank of
Canada implements its monetary policy.
Leveraging Swift’s secure financial messaging service, Lynx is used to settle critical financial market infrastructures including securities, foreign exchange, derivatives, and retail clearings. Participating financial
institutions also use Lynx to send inter-financial institution payments or to settle amounts owed between their customers.
The
launch of Lynx in August 2021 was a significant collaborative effort between Payments Canada, our member participants, Swift, the Bank of Canada, and our technology partners IBM and Nexi. In its first year of operations, Lynx cleared and settled over 12
million payments valued at approximately $115 trillion.
Why does Canada need a new high-value payment system?
Canada’s payment infrastructure is widely recognised as one of the most secure in the world. However, as other economies moved to faster, data-rich payments, our core payment clearing and settlement systems were becoming increasingly outdated. To support
the long-term growth of Canada’s economy and payment needs today and in the future, a new high-value payment system was needed to replace the Large Value Transfer System that was established in 1999.
Lynx has been designed with flexibility to support modern technologies including APIs. It also allows for enhanced reporting capabilities, including real-time dashboards that support liquidity management and payment processing. Lynx is also able to clear
and settle payments with real-time settlement finality﹘something that was not possible with the previous system. Its predecessor provided for real-time payment finality; however, settlement of multilateral net positions occurred at the end of the payment cycle
with backing from the Bank of Canada.
Lynx provides payment clearing and settlement finality between participants in real-time and on a gross basis. Since settlement occurs immediately after the clearing of each individual payment, funds are transferred instantly in central bank money from one
participant to another. This certainty of settlement leads to lower risk for participants and the Bank of Canada and ultimately, increases the safety and soundness of Canada’s financial system.
Introducing ISO 20022 to Lynx
To mitigate risk, Lynx was implemented in two releases. The first release, mentioned above, included the implementation of a new risk model and new technology (application and infrastructure). The
second release which went live in March 2023, introduced end-to-end support for the ISO 20022 financial messaging standard.
ISO 20022 allows richer, more structured data to travel with each payment. In due time, as more financial institutions begin to send and receive ISO 20022-enabled payments, they will be able to offer enhanced and new products and services to their customers.
Payments Canada introduced ISO 20022 to high-value payments in Canada at the same time as the global payment community. This migration was undertaken by more than 11,000 financial institutions in over 200 countries and territories around the world, and marked
the start of Swift’s global migration to ISO 20022 for cross-border payments and reporting. By moving in lock-step with Swift and our global counterparts, Lynx maintained interoperability with payment systems around the world to support global customers.
The Lynx MT/MX coexistence period
The implementation of ISO 20022 marks the completion of the Lynx modernisation program. However, it also marks the beginning of the Lynx MT/MX coexistence period. During this period, Lynx participants are migrating from using Swift’s traditional payment
Message Types (MT) to the new MX messages, which are XML based and can carry more information than their predecessor. During the first weeks after ISO 20022 implementation, just over 50% of the volume of payments settled by Lynx were done using MX messages.
In line with Swift’s global initiative to implement ISO 20022 (MX messages) for cross-border payments, all financial institutions on the Swift network in Canada (and around the world) must now be in a position to receive ISO 20022 payments as of March 2023,
and will be required to send payments using ISO 20022 by November 2025.
In 2023, Payments Canada will continue to support our member financial institutions in their journey toward ISO 20022 adoption and implementation. This includes building awareness of the benefits of data-rich payments and supporting awareness and adoption
of the standard. It also includes working with the Canadian payment industry to plan for the end of MT message usage in Lynx for November 2025.
Learn more about Lynx and ISO 20022
Taking place virtually and in-person in Toronto from May 3-5, 2023, is Canada’s largest gathering of financial and payment professionals,
The Payments Canada SUMMIT. On May 4, I will be moderating a breakout session, ‘Delivering, Lynx Canada’s high-value payment system’, alongside subject matter
experts from Swift, Bank of America, and Payments Canada. The session will explore what it took to deliver Lynx Release One and Two successfully, learnings from the first month of live operations with ISO 20022, what’s next for Lynx and how Canada is moving
forward with the global payment community.