The ISO 20022 standard is by no means new, at least as a concept, though in terms of implementation, things stand somewhat differently. This standard was born in 1999, at least as a proposal whereby standards would be based on structured and formal frameworks that would include end-to-end transactions, business information modelling, and validation levels that would be flexible but stricter. The goal was to switch to a system that wasn’t as error prone as the manual being used at the time, as well as to achieve STP improvements and to reduce costs.
ISO 20022 is based using a common business modelling methodology to collect, analyze and describe user business processes. It is a global and open standard that isn’t under the control of any single person, organization or interest. Anyone in the industry can participate, if they choose to do so, and it is free to implement. It features fully established maintenance, governance and evolution process. In essence, ISO 20022 can be used to create standards for financial messaging.
The Benefits of ISO 20022
ISO 20022 offers a wide range of benefits. It is a financial messaging standard that encompasses the complete transaction sequence for securities, payments and certain trade transactions. It also includes a complete selection of data sets and messages for investment funds. ISO 20022-based transactions offer additional functionality, allowing for longer references, providing support for non-Latin alphabets, offering improved remittance and also permitting for extensions. Thus, an ISO 20022 transaction will always contain more information than any other type of transactions.
However, ISO 20022 is not just a series of messages. It goes far beyond that. It gives users the ability to harmonize formats that did not previously allow for cross-operation, which improves efficiency while reducing costs and exposure to risk.
ISO 20022 is also flexible. Not only can it be used on a global scale as a harmonious system, but it can also be adapted to meet the needs of local businesses and services.
The Importance of ISO 20022
At the moment, there are approximately 200 initiatives on a global scale that have implemented or are in the planning stages of implementation, of the ISO 20022 standard and this number is on the rise as adoption accelerates. There are few reasons for this acceleration, including market integration, cost efficiency, expansion on an international level, regulatory reform and the need to replace traditional systems.
Considering how quickly the world is changing and how small it is becoming, it is imperative for financial institutions to keep the same pace, which means employing a system that will allow them to more easily manage multiple market infrastructures. Even if a financial institution doesn’t necessarily have a global impact, they still deal with a variety of parties on a daily basis, including correspondent banks, corporate customers, and other financial institutions. And it is imperative for everyone “to speak” the same “language” to reduce risks and costs as well as being able to offer differentiated services, which will help maintain a competitive edge.
Implementation of ISO 20022 is not simple, though. Two approaches are usually employed. The first is a tactical approach where the financial institution treats their various market infrastructures as separate entities and implements the system accordingly. To make implementation simpler, some organizations may choose to translate ISO 20022 messages into their legacy formats and vice-versa, thereby leaving the core system untouched. However, this is certainly not a long-term or effective solution.
The other option is a strategic approach where the institution adapts their infrastructure and application system to create an architecture that has ISO 20022 capabilities. This is a better approach, at least for those financial institutions that are looking to the future and understand that ISO 20022 is the future and there is no way around it.
The actual implementation of ISO 20022 is complex and most financial institutions find it more efficient to use the services of ISO 20022 implementation experts. The latter work with the financial institution to create an effective and efficient solution, that can be implemented much more quickly than if the project was handled in-house. Accelerate your ISO 20022 project with our ISO 20022 SDK.