ISO 20022 is the new global standard for financial messaging that will provide a new language and structure for payment data.
This standard has been developed to enhance cross-border payments and reduce the cost and complexity of processing payments across various financial systems.
The adoption of ISO 20022 is gaining ground worldwide, with countries and financial institutions implementing it at varying speeds.
While some countries, such as India, China, and Japan, have already implemented ISO 20022, others are still in the early stages of its migration.
Banks need to be aware that there are deadlines imposed by certain countries or jurisdictions in which they operate.
In Europe, for instance, the Bank of England has set a deadline of April 2023 for all CHAPS direct participants to be able to send and receive ISO 20022 payment messages.
The European Central Bank has announced a go-live date of March 2023. Similarly, the transition from SWIFT to ISO 20022 will also go live in March 2023, but from that date until November 2025, a "coexistence" period will begin and the system will accept and support both the old message format (MT) as well as the new XML-based messages.
The management of compliance with the new standard does not fall under a universal approach.
Banks will need to take a strategic approach to their migration due to the varying deadlines and coexistence periods.
For instance, banks that are working to comply with the SWIFT ISO 20022 migration will activate a message translation layer in their back-office systems to convert MT messages to MX XML to handle operations during the coexistence period.
Some may want to consider creating translation layers within their payment ecosystem to effectively manage migrations across many different legacy formats to ISO 20022.
Some may consider building translation layers in their payment ecosystem to effectively manage migrations across numerous different legacy formats to ISO 20022. Others may not be able to afford developing a translation service, but could use a vendor-provided translation utility/service to facilitate the mapping of MT to MX in the meantime.
The adoption of ISO 20022 brings several benefits, including increased transparency, faster settlement times, improved accuracy, and lower costs.
However, banks will face several challenges during their transition to the new standard. Deadlines and translation approaches are just initial considerations that banks will have to take into account as they move forward with their transition.
Ultimately, the migration to ISO 20022 will be essential for banks to remain competitive and meet the evolving needs of their customers in the global payments landscape.
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