Covid-19 dented the plans of many projects in the payment sector, including SWIFT’s ISO 20022 mandate. And while many institutions are sweeping their own migration journey aside for a “later time” others are already ready, or are preparing for the change.
With the close of the recent SIBOS conference and the release of RBA’s annual report, it’s a fitting time for Australian financial institutions to ask, ‘what’s happening with ISO 20022 now, where are we going, and how do we prepare for the new standard?’
Swift’s mandate will bring industry-wide change
SWIFT is phasing out its current MT payment system and plans to complete the migration to ISO 20022 by November 2025, which means any financial institution connected to SWIFT has to adapt.
For the most part, institutions see ISO 20022 as a positive and much needed change. Nicholas Soo, Regional Head of Payment Products, GLCM, at HSBC, shared his thoughts on the migration during the recent SIBOS conference, saying, “ISO 20022 is a real watershed moment for the industry to rally together to actually improve a lot of the problems.”
Richer data, more harmonisation between domestic and cross border payments, enhanced screening, increased innovation, and better analytics are just some of the benefits to look forward to.
But the migration will not be free of challenges. System readiness, reliance on vendors, managing truncated data, regulatory reporting, and whether you translate to shield back office systems or opt for full migration, are all significant hurdles to overcome.
“We are all used to FIN MT standard”, says Christian Fraedrich, Head of Cash Business Architecture at Deutsche Bank. “There’s a lot of high complexity to maneuver through and bring this all in line.”
Preparing for the great migration
“All of this can be overcome (by) preparing as soon as possible”, said Fraedrich.
Even though we are a year out from the start of the SWIFT coexistence period, much is required for companies to be ready to even begin the migration process. Starting the journey now will make the process much more smooth and add more value to an organisation in the long run.
Some Australian institutions are already working on the adoption. The Reserve Bank of Australia indicated their progress in the 2021 annual report: ‘the Bank has been participating in the industry-led migration project. The planning and design phase is completed, and the project has entered the build phase.’
AUSTRAC is also currently surveying reporting entities on the change to understand what they want from it’s system when they upgrade to receive ISO 20022 messages formats.
While some organisations are already on the path to implement solutions, that isn’t necessarily the case with the smaller financial institutions. So what can they do to get ahead of the changes?
Soo shared four key suggestions for successful ISO 20022 preparation: prioritise resources, engage clients early on, participate in local community events, and actively approach SWIFT to understand their new workflow. “Those, to me, would be the bare minimum institutions need to be thinking about in preparing for this change”, Soo stated.
ISO 20022 is only one part of the puzzle
Although ISO 20022 remains the chosen standard for up to 87% of high-value payments globally, it is not the only one. The industry is experiencing a wider adoption of alternative real-time payment schemes and CDBCs, as well as upgrades to other current payment schemes.
‘I do sense there isn’t that appreciation of the magnitude of the change that the industry is going through… it is not just a message change. It is much, much broader’, said Soo.
Joe Higginson, our Commercial Chief Officer, echoed a similar sentiment in a recent interview with The Banker. While Joe sees SWIFT’s ISO 20022 mandate as “noble” and heading in the right direction, “SWIFT isn’t the only gateway in the world,” he adds.
While ISO 20022 solves a lot of messaging transfer issues, “you still don’t have interoperability globally,” Higginson says. While there will be one standard for ISO 20022, domestic rails outside the SWIFT network could be slightly different. Regional dialects of ISO 20022 are a likely outcome of the change as domestic rails add their own flavour and requirements to the standard.
Perhaps we may never reach the point of a perfect payment system. Still, the new standard is a welcomed change and set to make waves across the industry as more institutions adopt.
Identitii’s compliance reporting platform helps you to automate AML/CTF transactions in a fast, safe, and secure way. To learn more about how our platform can assist with your ISO 20022 migration, click here.