Size does matter for banks tackling ISO20022 migration - How?

To keep it clear, the extent of the impact on banks and FIs is dependent on how involved each is in the overall payment chain. 

The impact will be greatest for global banks – affecting all aspects of the payment chain from their handling of structured payment-party information at the initiation stage through to message archiving once the payment has been settled. As a result, global banks will need to establish a global project and assess the impact the migration will have on their commercial model and local entities. 

Like their global counterparts, regional banks will be mandated to implement a number of changes across their payment chain – though with slightly enhanced optionality. As such, the impact of the migration will also be high for regional banks – particularly those in Europe facing the November 2021 deadline for the RTGS MI migration. Though banks operating outside Europe have more time and flexibility to complete their migration, they need to review their historical payment reports. Ones using SWIFT Insights will benefit hugely as it gives insights on both their gpi traffic, key currency correspondents and overall traffic.  

For small and medium-sized enterprises (SMEs), the impact of ISO 20022 will be limited, however, based on their global engagement, an assessment is recommended. The impact on retail clients will be minimal, with only those consumers using cross-border and RTGS payments needing to be aware of the new data requirements.

Banks and other payment service providers participating in MIs or involved in cross-border payments are gearing up to support ISO 20022 payment and account information messages throughout the end-to-end value chain. To meet this challenge, most banks will have to be ready to support ISO 20022 for CBPR+ and the HVPS+ applicable to the respective MI – and at a minimum be able to create and forward structured party data by November 2021. This requires banks to assess and decide on their clearing connectivity options and potentially adjust the business processes used in payments.

So, what will be the impact on the lifecycle of a payment instruction? 

a. Client Impact

• Ensuring continuity with any non-ISO 20022 mode of payment initiation for cross-border transfer, such as local file format - to be able to provide minimum mandatory information.
• Prepare for providing structured name/ address information of beneficiaries.
• Ensure client static data is available to payment processing in a structured format, for population of Debtor information

b. Impact on Client Service 

• Enable working with ISO 20022 message elements in internet banking and other digital sources. 

c. Impact on client systems and statements 

• Develop solution to present extended payment details (where applicable).
• Changes to the payment details shown in current account statements. 

d. Impact on payment initiation channels 

• Demand/enable capturing of structured party data for cross-border payments. 
• Enhance online banking/integration channels to support ultimate parties. 
• Consider support for structured remittance information capture. 
• Support UTF-8 standard. 
• Expect changes in the support of ISO 20022 pain instructions as per CGI standard 
• Expect certain local instruction formats to be phased out as they do not support minimum standards of cross-border payments. 
• Enhance validation rules to consider HVPS+/CBPR+ minimum data requirements.

e. Impact on routing & integration 

• Ensure rich/complete data flow to downstream processing applications.  
• Support (as a minimum) the ISO 20022 business elements for internal messaging/APIs. 
• Review the payment-relay scenario. 

f. Impact on payment status information 

• Consider broad roll-out of ISO 20022 feedback message types. (Automated report screens to present payment status feedback for payments processed in ISO 20022 messages.  
• Enhance legacy/bespoke feedback channels to present meaningful status information for ISO 20022 payments.  

g. Impact on other products with payment needs 

• Evaluate internal payment flows which qualify for MT->MX translation 
• Make structured counterparty data (creditor name/address) available

h. Impact on Payment processing 

Qualification 

• Enhance qualification rules to be able to handle new data structure of the respective ISO 20022 message (e.g. Field 72 split across) 
• Consider full ISO 20022 message content, including new agent fields. 

Auto Repair

• Adjust auto-repair rules to work with ISO 20022 message elements, in addition to equivalent FIN elements.  
• Establish new auto-repair rules for new message elements.  

Manual Repair 

• Select/implement ISO 20022 elements to be in scope of manual repair. 
• Method of Payment Selection. 
• Develop ability to consider new ISO 20022 message elements to determine preferred/required method of payment. 
• Intermediary Bank Selection (if applicable). 
• Adjust intermediary bank selection logic for additional agent fields.

Charging Process 

• Manage the complexity of co-existence of FIN & ISO 20022 charge bearer codes 
• Adopt strict rules on charges information capture in pacs messages.

Controls

• Enhance embargo filtering to screen all enhanced payment details and additional parties and agents 
• Ensure filtering systems can handle ISO 20022 and SWIFT FIN MT feeds in parallel, during the co-existence phase 
• Enhance AML Transaction Monitoring utilizing granular ISO 20022 data elements in data-feeds and in risk typologies. 

Create Advice

• Generate pacs advice messages in line with CBPR+ usage guidelines, i.e. provide structured party information (Debtor/Creditor/Ultimate Parties) 

i. Impact on financial messaging

• Implementation of translator for outbound traffic still originating in MT and incoming MT.
• Adoption of DN format for routing. 
• Prepare a fall back plan. 

j. RTGS and local clearing 

• Bespoke solutions for infrastructure migrations e.g. ESMIG, AU RITS. 
• Supporting pacs messaging. 
• Message exchange mode (Y Copy). 
• Co-existence of FIN and InterAct RMA database. 

k. Interbank statements and account information. 

• The parallel phase of provisioning MT & ISO20022 account statements
• Prepare for mandatory use of ISO 20022 camt statements to be provided to correspondent banking clients. 
• A solution to present extended payment details.  

l. Exceptions and investigations

• Display ISO 20022 message elements across all investigation steps. 
• Support new ISO 20022 investigation messages.
• Assess process changes resulting from a more granular message portfolio for investigations and exceptions, when compared to FIN messaging.
• Identify alternatives to the current practice of free format message usage (MTx99).

m. Nostro Recons

• Enable reconciliation engines to work with ISO 20022 camt account statements received from Nostro Agents, incl. additional data. 
• Work with Nostro banks on the implementation approach for camt statements. 

n. Pricing, billing and chargebacks.

• Re-work the sender identification process for payments received by clearing in V-shape topology. 
• Review the ‘OUR’/”DEBT” claim processes for impact.

o. Impact on reports and Archives. 

• Review retrieval processes for the need to adopt ISO 20022 data elements as indexing/search criteria. 
• Archives to capture the additional data as part of the new standard. 
• Payments executed as ISO 20022 have to seamlessly count into existing MIS reports.
• Reports showing count and recipient of payments processed under both MT and MX. 

From these, we can infer success will require planning and a specific ISO 20022 project that has the buy-in from senior management in order to secure the human and funding resources necessary for a multi-year initiative. 

Regardless of the bank’s size, any project will have to understand the global implications of local changes. At the core of this effort, banks will also have to ensure that the knowledge and awareness of the transition are sufficient – allowing them to prepare for any complications once the new standard goes live. 

Excerpts from publicly available sources.