August 2018

As global market infrastructures modernise across the world, Deutsche Bank’s Head of Market Infrastructure and Industry Initiatives, Cash Management, Paula Roels, discusses with The Banker where the global banking industry stands in implementing the landmark ISO 20022 standard, the different approaches to its implementation and the critical factors for success

The global financial system is undergoing its largest, most far-reaching transformation in recent history. Underpinning most of this change is ISO 20022 – an open, international messaging standard that defines key business processes and data. In the next five years, it is predicted that 89% of the value of transactions worldwide will have moved to ISO 20022 – catalysing huge improvements in efficiency and transparency.

However, migration to ISO 20022 draws on bank budgets –requiring widespread IT and architecture changes – and will impact business models. Care and co-operation is therefore critical.

In Europe, the Eurosystem is in charge of facilitating the migration to ISO 20022 messaging, which will be incorporated into the three major modernisation projects outlined in its Vision 2020 programme. This means that the upcoming Target Instant Payments Settlement (TIPS) scheme, the revamped TARGET2 and TARGET2 Securities (T2S), and the upgraded collateral management system will all operate using the same messaging standards – facilitating smooth inter-operability.
 
Switzerland, meanwhile, began migrating its market infrastructure to ISO 20022 in 2010. Now complete, its implementation stands as an informative case study for the Eurosystem. The migration followed a three-phase roadmap. First, market infrastructures were brought onto ISO 20022; then the bank-to-bank space was addressed; and, last, the customer-to-bank space, focusing on both payments and reporting.

The smooth implementation that followed owes much if its success to the fact that the new system’s board of directors represented 85% of the market, ensuring strategic discussions and decisions carried a high level of commitment.

Of course, market infrastructure modernisation has knock-on effects for all parties, and the feedback from the corporate customers of Deutsche Bank clients is clear in terms of what they expect from ISO 20022. Achieving straight-through processing and ending manual payments via numerous standards and multiple customised message pipelines feature at the top of the list, as does the need to adopt consistent formatting standards and consolidate transaction data flows.

Yet achieving these aims requires orchestration and harmonisation on the part of banks, Swift and other institutions. Swift’s community consultation in April 2018 represents a significant step in the right direction. With the formal consultation now complete, the results and a detailed roadmap for migration are expected to be released towards the end of the year.

These collaborative efforts to establish market infrastructure services that ready the market for the rapidly changing environment must be encouraged. Migration to ISO 20022 is a large part of this effort, with its potential to deliver rich, structured information with a payment, and the flexibility to respond to future client needs. As markets adapt, they would do well to proceed thoughtfully, prioritising collaboration and openness, while bearing in mind the experiences of those that have come before.

To read the full article, click here.

To read the complete Cash Management Guide, click here.

Paula Roels

Head of Market Infrastructure and Industry Initiatives | Cash Management | Deutsche Bank

Paula Roels

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