REGULATORY INITIATIVES
The global adoption of the new ISO 20022 payment standard is a much-awaited development in the history of crossborder payments
ISO 20022 : Benefits and challenges
The global adoption of the new ISO 20022 payment standard is a much-awaited development in the history of cross-border payments . The changes it will bring to payment messaging formats will have a transformative impact on the financial services industry . However , if one digs deeper into the technicalities , the changes seem to be complicated not only for compliance professionals but also for the professionals working in technology . That is why FIs are following an extremely cautious approach to embedding the new standard into their compliance ecosystem . FIs are approaching the 2025 deadline at different paces , and nearly 70 countries are already using ISO 20022 , including Switzerland , China , India and Japan . On the other hand , the transition in Europe is still in the work-inprogress stage , and they are working on adopting the new standard in a carefully crafted strategy . Australia , however , is going hand-in-hand with both payment systems ( i . e ., text message and MX messaging formats and targeting to fully go live by 2024 ).
While we discuss the pace of adoption globally , it is important to understand the reason behind this fragmented pace of adoption at a global level . Although there is no doubt about the vast and far-reaching benefits of the ISO 20022 payment standard , some major challenges are impacting the pace at which this standard is getting embedded into the existing system by FIs .
The benefits of this ISO 20022 standard to FIs will include higher data quality , holistic payment transaction information and an enhanced non-fragmented standard messaging format . A snapshot of these key benefits is as follows :
▪ Enhanced level of data quality and longer character limits
▪ An effective and efficient sanctions screening process resulting in effective sanctions alert management
▪ Increased and effective financial crime compliance risk management
▪ Effective reconciliation of cross-border transactions due to richer data quality
▪ Enhanced level of interoperability and interface among various payment systems
▪ Low cost of maintenance and incurring low cost for the execution of faster cross-border payment transactions
To understand the challenges in the implementation of the ISO 20022 standard , a survey across India and the Asia-Pacific and Middle East regions 4 sought the views from compliance professionals on the benefits and challenges of the new standard .
Out of the total responses received , 93 % of the respondents agreed and acknowledged that the new payment standard would be more effective . In terms of their understanding , 67 % of respondents perceive that the ISO 20022 standard is the “ common messaging standard ,” where 22 % acknowledged it to be freely implementable and scalable and 11 % responded that it is an independent standard . On further advantages , 71 % of the compliance / sanction officers acknowledged that the biggest advantage of the new standard would be addressing financial crime compliance risk and improving structured data . Fourteen percent of respondents mentioned the advantage of having a consistent data model , while another 14 % acknowledged benefits regarding regulatory reporting .
When they were further questioned on the impact of adopting the ISO 20022 payment standard on the effectiveness of sanctions screening and false positive alerts , 51 % of the respondents expected that the false positive alerts would be reduced by more than 30 %. Twenty-five percent of respondents expected a reduction in the range of 10 % to 30 % and 25 % expected a reduction below 10 %. This optimism regarding the benefits of the name screening process is encouraging and demonstrates confidence in the ISO 20022 standard by the compliance and sanctions officers .
Amid this encouraging response on the benefits , when the question was asked as to what challenges they see for adoption of the ISO 20022 payment standard , 50 % of the respondents acknowledged the implementation challenges with respect to their existing compliance systems and 50 % responded that understanding the new syntax of the ISO 20022 standard will be the biggest challenge in the adoption .
40 acamstoday . org