REGULATORY INITIATIVES
The above responses obtained from fellow compliance professionals clearly demonstrate that despite the benefits ISO 20022 aims to bring to the table , FIs and compliance officers still must navigate through their “ migration ” strategy to the new standard . Before one concludes on the required implementation road map , it is worth considering a few more pieces of information obtained during this survey .
The first thing that invites attention is the changes required in the enhancements required in the legacy payment systems . One of the biggest advantages of the new standard is the structured data points , which will bring efficiency to the payment messages by making the message format more standardized and homogeneous . As per the SWIFT publication , “ ISO 20022 for Dummies ,” the new payment standard has a methodology that can describe business processes and a common business language . It also has the functionality to be rendered in different syntaxes , enabling implementations for messaging and application programming interfaces . Consequently , the ISO 20022 standard is going to address the pain points related to the syntaxes and the semantics and result in a consistent message standard . To embed these functionalities into their existing system is going to be an uphill task for FIs as that will require enhancement to the existing technical specifications of the legacy systems . That will also involve creating the capability to accommodate 775 business components and more than 800 message definitions . 6 In short , the whole technological architecture of the legacy systems will need to be reviewed and enhanced .
The second point is understanding the proposed messaging format of the ISO 20022 payment standard and the related nuances . During the interaction with fellow compliance / sanction professionals , one of the compliance officers shared that there are challenges in understanding the new proposed format and a dearth of techno-functional experts who can guide the transition and conversion of the text message format to the new MX message template format at the user analysis and testing phase as well as the production stage of the implementation . To increase the complexity , there is also a shortage of vendors who can support FIs in the transition to the new payment standard . This demonstrates the critical gap in getting support for the transition for FIs .
To summarize the on-the-ground reality , the ISO 20022 payment system is not only the most awaited development in the payment industry but is also going to be the testing time for compliance / sanction officers and FIs globally . However , it is also going to be a “ once-in-decade ” kind of opportunity where compliance officers will leverage their complete knowledge and wisdom in making this transformational journey a success not only for their respective institutions but also for the industry at a macro level .
Conclusion
The ISO 20022 payment standard is a much-awaited transformative development in the payment processing industry , which will bring the “ element of order ” to the whole payment processing ecosystem . The paradigm shift will make payment processing more efficient , faster and transparent . However , banks and FIs need to strategize their transition to the new standard in a very cautious and mature way , keeping in mind the maturity level of their institution ’ s payments processing ecosystem and the benefits and challenges discussed above . While FIs gear up to embrace the benefits of the new standard , they also need to overhaul compliance processes and supporting technology . Once the necessary investments in terms of financial budgets , the experience of the subject-matter experts and the thorough overhaul of the entire ecosystem have been undertaken , the ISO 20022 payment standard will truly create a coherent and more transparent financial services payments processing environment .
Sachin Shah , CAMS , domain consultant , Tata Consultancy Services , Mumbai , India , shahmsachin @ gmail . com , Disclaimer : The content contained herein is for general information purposes only and is neither legal nor business advice . You should consult your own legal and business advisors for advice that applies to your specific situation .
1
Victoria Cleland , “ Victoria Cleland : Global action to enhance cross-border payments ,” BIS , April 4 , 2023 , https :// www . bis . org / review / r230404i . htm
2
“ Cross-border payments : Market overview ,” PWC , July 2021 , https :// www . pwc . in / industries / financial-services / fintech / dp / the-evolving-landscape-of-cross-borderpayments . html
3
“ SWIFT gpi data indicate drivers of fast cross-border payments ,” BIS , February 8 , 2022 , https :// www . bis . org / cpmi / publ / swift _ gpi . pdf
4
The author conducted an independent survey with compliance professionals across India and the Asia-Pacific and Middle East regions .
5
This survey and its results were created by the author .
6
“ Swift ISO 20022 for Dummies , 6th Edition ,” For Dummies and John Wiley & Sons , Inc ., 2022 .
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