Many years since the initial publication of ISO 20022, more and more financial firms are beginning to leverage the standard.
For instance, SWIFT—the global member-owned cooperative and a leading provider of secure financial messaging services—recently announced the creation of a common end-to-end implementation to increase the move of cross-border transactions to the ISO 20022 standard.
SWIFT hopes to increase efficiencies, support straight-through-processing, facilitate improved regulatory compliance, improve the party-identification process, and provide the opportunity for financial institutions to conduct new business. According to SWIFT, the move to ISO 20022 is being driven by the payments community and will require engagement and dialogue between SWIFT users on a regular basis. SWIFT said it will invite the community to review and comment on the guidelines as they are crafted.
The History of ISO 20022
The need for a standard like ISO 20022 arose at the turn of the century. It was driven by the widespread growth of the Internet Protocol (IP) and the emergence of Extensible Markup Language (XML) as the de facto open technical standard for electronic communications. A multitude of uncoordinated XML-based standardization initiatives also emerged, each using their own dialect.
Published initially in 2004, ISO 20022 is an open, international standard that defines the ISO platform for the development of financial message standards. The standard isn’t controlled by any single organization. Anyone in the financial industry can participate, and the standard is free to implement. It features fully-established maintenance, governance and evolution processes that can be used to create standards for financial messaging.
The standard allows users and developers to represent financial business processes and underlying transactions in a formal but syntax-independent notation. The business transaction models can be converted into physical messages in the desired syntax.
At the time ISO 20022 was developed, XML was the preferred syntax for e-communication. The first edition of ISO 20022 thus proposed a standardized XML-based syntax for messages. The second edition of the standard, published in 2013, includes the possibility to use ASN.1 as well.
The Benefits of ISO 20022
ISO 20022 focuses on international, cross-border communications among financial institutions, clients, and market infrastructures involved in the processing of financial transactions. There is, however, a strong opportunity to also use ISO 20022 for the development of new domestic financial messages, which will streamline all communications for financial institutions.
The standard can be used across various business domains, communication networks, and the infrastructures of financial institutions, clients and suppliers. This flexibility provides many benefits for financial institutions to improve transaction efficiency while reducing costs and exposure to risk:
- Creates a common language for financial business process communications.
- Facilitates interoperability with other protocols.
- Generates financial messaging standard encompassing complete transaction sequences.
- Includes a complete selection of data sets and messages for investment funds.
- Provides support for non-Latin alphabets.
- Offers improved remittance and permitting for extensions.
- Harmonizes formats not previously allowed for cross-operation.
Another key value of ISO 20022 comes from its common method of using XML and shielding investments from future syntax changes—by using a common business modeling methodology to capture, analyze and describe the business processes of potential users and their information needs. This is done in a way that is syntax-independent. With its flexible framework, ISO 20022 also encourages users to build business transactions and message models under an internationally agreed-upon approach, and to migrate to a common vocabulary and common set of syntaxes.
In addition, the models and the derived XML and ASN.1 outputs can be stored in a central financial repository serviced by an ISO Registration Authority. This repository offers free access to a data dictionary of business and message components, and a business process catalog containing message models and corresponding XML and ASN.1 schemas.
A Standard That Makes Sense for Global and Local Financial Firms
According to Payment Components, there are approximately 200 initiatives on a global scale that have implemented ISO 20022 or are in the planning stages of implementation, and this number is on the rise as adoption accelerates. Market integration, cost efficiency, international expansion, regulatory reform, and the need to replace traditional systems are key drivers behind this trend.
Given the digital age that the world economy now functions in, global as well as local financial institutions need to employ a standard like ISO 20022. It will enable them to more easily manage multiple market infrastructures and do business with a variety of correspondent banks, corporate customers, and other financial institutions. These ecosystems will only work if everyone speaks the same language.
An important tool to consider when building an ISO 20022 solution is managed file transfer. MOVEit Managed File Transfer (MFT) software from Ipswitch is used by thousands of organizations around the world to provide complete visibility and control over file transfer activities. The technology gives financial firms the ability to assure the reliability of core business processes and the secure and compliant transfer of sensitive data among banks, customers and business partners.
It’s also important to note that implementation of ISO 20022 is not simple. Most financial firms will need to rely on the services of deployment experts to ensure the project is completed within a reasonable time frame and cost.