ISO 20022 – So Let’s Get Technical!

At first glance, it may seem that the consequences of ISO 20022 are limited to the interbank market. However, enterprises will soon need to act if they wish to reap the rewards and avoid issues. Erol Bozak, CPO and Cofounder of TIS, explains that SWIFT will fully support, accept and translate the ISO 20022 format from FIN/MT messages beginning November 2022. “Although the deadline for financial institutions is at the end of this year, there will be a coexistence period of both format types between November 2022 and November 2025. At their own pace, financial institutions will stop supporting and accepting legacy MT formats - also from their corporate clients.” SWIFT is, however, not requiring corporates to convert by November 2025.

?“We see that banks worldwide have begun their ISO 20022 journey”, comments Erol Bozak. “Some are already asking TIS to change or migrate formats used to connect the specific country and payment types to their corporate clients. We have also begun receiving inquiries?regarding the best way to format ISO XML in different countries.” After over 4 decades of SWIFT MT/FIN, this change is being made to take advantage of richer, more structured data. “Format standardization plus significantly more space for reference information will help avoid truncation of information,” explains Erol. “This, in turn, aids reconciliation and improves STP rates.” Additional regulatory reporting requirements have also played a role in the move to ISO 20022 and the new format will better support working with instant payments, Request-to-Pay, and SWIFT GPI, etc.

?When asked if this change can be compared to the SEPA migration, Erol comments, “SEPA was - first and foremost – an issue for Europe, while ISO 20022 is Global!” He also explains that this change is not just affecting banks and their clients but also their systems’ providers. “Although ERPs can provide ISO XML formats, this can be both expensive and complex. A corporate would need to program the correct version for every bank and branch in every country and every single payment type. This needs to be managed continuously while keeping up with all appropriate changes over time!” Today SWIFT has some 15-20 key tags. These will need to be converted from MT to, e.g., a PAIN001 with 800-900 fields! ISO XML is a framework with only a few mandatory fields.... the rest are conditional or optional, making mapping more complex. The ISO 20022 conversion is a significant undertaking, in part, because there are over 100,000 unique payment?types globally that require different data and data sequences.

?Erol points out that “the challenge for corporates, system vendors and banks is not only about converting MT to XML, but also translating many local formats.” When asked, who decides how these fields will be used or ordered, Erol mentions the CGI-MP industry?group. This forum is dedicated to achieving a common global implementation of ISO 20022. However, Erol notes that this is in the hands of the banks, local regulators, and policymakers in the end. There are no universal rules. Even with all the long-term advantages, banks and even the RTGSs may move at different speeds, will make the adoption of ISO 20022 challenging. And for corporates, all of these changes can translate into time-consuming and expensive IT projects.

?Erol cautions that “to comply with enhanced compliance and regulatory requirements, corporates will need to collect and maintain more detailed information about their counterparties. ISO XML to legacy - backward compatibility - as well as MT to ISO means that some (internal) systems will not be able to support these changes.” There is a risk that corporates may receive incomplete information if relying on MT940s or MT942s for reporting. An MT 940 is unstructured with limited fields that must be “translated” to the ISO 20022 CAMP 053. “This is not just an IT conversion project”, Erol warns. “Processes will need to be reviewed, updated, and mapped!” Corporates who don’t want to handle all these changes in-house can leverage appropriate conversion services or outsource this complexity to a competent vendor. “TIS can help clients upgrade their systems over time to always assure the appropriate bank connectivity!”

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