What is ISO 20022?

ISO 20022 is a financial messaging standard that offers more structured, richer and accurate data in comparison to its predecessor ISO 15022 and aims to increase the levels of transparency, flexibility and automation in financial transactions and processes. ISO 20022 is also expected to improve the customer experience, operational efficiency and compliance processes by promising smoother reconciliation, higher interoperability between local and international channels, more structured and easy to classify data and higher automation.

The ultimate purpose of the ISO 20022 messaging standard is to support a more innovative and comprehensive payments environment as it helps financial institutions answer compliance-related requirements in a faster and safer way and deliver more detailed and clearer remittance data with its richer and structured data.

Why Should Banks and Financial Institutions Connected to SWIFT Migrate to ISO 20022?

With the transition to ISO 20022 messaging standard, the current FIN network that is used to transfer the financial messages will be replaced by the SWIFTNet Interact FINPlus network. For the banks and other financial institutions that are connected to SWIFT, this means that they will need to present their RMA (Relationship Management Application) keys which are granted to them by the current SWIFT FIN network and switch to a new SWIFT Gateway. To modulate the transition period and reinforce the processes of translation, shortening and restoration, the newly formed Transaction Management Platform of SWIFT will support the financial institutions.

Another important driver for the SWIFT connected FIs to migrate to ISO 20022 is that the market infrastructures of the top ten global currencies have already completed their transformation or started to use the ISO 20022 format and will be fully migrated to it in the near future.

Furthermore, it is possible to count several commercial benefits of migration to ISO 20022 messaging standard for the financial institutions that are no less important than the motivations of transition by SWIFT and global market infrastructures mentioned above. First of all, the new ISO 20022 standard increases the operation efficiency up to a great extent as it offers more structured and enriched data that increase automation and diminish the need for manual intervention, enhance processes of settlements and cash-related forecasting. Secondly, moving to ISO 20022 standard will improve the compliance processes and help fight financial crimes as it strengthens AML (Anti-Money Laundering) procedures, screenings and monitoring as well as diminishes false-positives. The enriched and structured data help FIs analyze the information they have in a more effective and easier way which in turn benefits them by developing better decision-making systems. Finally, adopting the ISO 20022 messaging standard which will be globally valid through various local and global financial transactions means that the FIs will be able to achieve more interoperability and unity.

Last but not least, migration to ISO 20022 standard will also elevate the customer experience. Enrichment of the payment data, improvement in the operational efficiency and interoperability and unity in the transaction systems can be counted among the most prominent benefits of the transition from the perspective of customer experience.

Seamless Migration to ISO 20022: Building a Solid Testing Environment

The previous messaging standard, ISO 15022, was using the MT standard which was revolutionary when it was first developed in 1995; however, it remains inadequate for analyzing and classifying data efficiently in the age of digitalisation and technology because of its limited character set and number as well as the unstructured data arrangement. Its weakness of being vulnerable to unwanted complications requires manual intervention and time. The ISO 15022 standard also lacks inclusiveness on the compliance issues, resilience and easy processing.

It is possible to count three main drivers for the migration from ISO 15022 to ISO 20022, which are:
● Turning messaging data into a more structured, richer, more automated and easily classifiable format
● Making the code definitions more flexible and external. MT standard codes are limited, rigid and hard to follow. The codes of ISO 20022 will be free from the definition of the message which enables simpler and more effective code tracking and updating.
● Removing the uncertainty resulting from the unstructured data and increasing the accuracy and efficiency in the messaging processes.

To ensure the migration from ISO 15022 to ISO 20022 is smooth and seamless, the financial institutions need to equip themselves for a thorough testing environment. First step is to renovate their messaging interface by replacing the old version with a new one that can read the MX messages. Second step is to adjust the configuration and connectivity of the new interface making sure that it is ready for the FINplus test service. Finally, commence the testing via self-testing methods or with SWIFT to prove that your organization is in a solid position to switch to ISO 20022 messaging standard.

Make Your Compliance Process Integrated with ISO 20022 Standards

The unstructured data organization in payment messages and reporting processes was causing issues such as the misinterpretation of data and compliance screening which in turn increased the number of false positives and dysfunction in the payment processes. The structured nature of MX messaging standard that will be valid with the introduction of ISO 20022 standard, provides an effective flow of compliance related requirements because data gets more structured and easily readable thanks to the XML tags. With the introduction of XML tags, it will be possible to classify and monitor data more easily and accurately which in turn affects the reduction of the false positives up to a great extent. All in all, financial institutions can benefit from highly increased efficiency as they will be saving time, efforts and resources that might have been spent on identifying the incorrect alerts.

The financial institutions need to make sure that they analyze their own compliance programs and check their readiness to tackle the new messaging format of the ISO 20022 standard. The FIs that utilizes the screening or fraud solutions offered by SWIFT which are Sanctions/Transaction Screening (SSS/TSS) or Payment Controls (PCS) must work on the rules to screen ISO 20022 messages.

Tuncay Çoruh, Product Development Director