Harmonization – a Continuous Process

Required knowledge

• Familiarity with ISO 20022 standardization
• In-depth knowledge of the organization

An important topic related to ISO 20022 harmonization concerns several major central banks in their role as operators of clearing and settlement systems. The question is how they can coordinate developments after the conversion of networks and infrastructures to ISO 20022, and avoid a drift in concrete implementations. The proliferation of ISO 20022 messages enables simpler, more efficient order routing and the interconnection of market infrastructures, also known as “interlinking”. It is important to preserve these benefits, and not to undermine them with the next round of changes.

Swift has chosen the version 2019 of the message standard as the basis for migration to ISO 20022. Many market infrastructure operators – such as SIX in Switzerland – have also taken the opportunity to migrate their systems to this version, or at least are planning to do so. SEPA, with one of the largest schemes, has also decided to migrate the SEPA Clearing and Settlement Mechanisms to this message version in November this year. The transition within the Swift network has also prompted other providers to make adaptations.

Three Types of Adjustments

The requirements for market infrastructures and systems are constantly evolving, driven by the new needs of participants, such as banks or third-party systems, their clients, such as corporates or business solutions, and new regulations or technical developments. As a result, stakeholders may need to adapt their implementations or regulatory frameworks. If message content or validation needs to be changed or extended, there are three main options.

The simplest and, at least in Switzerland, most common way is to adapt the guidelines without adjusting the ISO 20022 basic message. Often it is sufficient to use a new code, to make a field mandatory, or to adapt a validation. Adapting the length, the allowed characters or the rules for the use of the message itself can also be done without a new version.

The situation becomes more complex when a newer version of the base message is required. While it is often possible to make the change in a single release for centralized infrastructures, in our country, with the Swiss Payment Standards we allow a transition period of three years for the change from pain.001.001.03 (version 2009) to pain.001.001.09 (version 2019). Regardless of how the transition is carried out, all system participants must adapt and test their systems.

If the desired adaptation is not possible with the message version currently in use, market participants must first request an adaptation of the base message or an entirely new ISO 20022 message from the Registration Authority. Such adaptations are published and made available to users in the second quarter of each year. This is particularly necessary when an infrastructure, a scheme, or a business case is migrating to ISO 20022 or is completely new. The Swiss community also regularly captures such changes in order to benefit from them in future version changes. This was done for the first time during the transition to the new .08 versions of camt.05x.

The Search for Authority

Central banks, as operators or supervisors, are well aware that once migration to the Swift network is complete, i.e., after 2025, the question of coordinated and concerted development will become increasingly important. It would be a great pity if, for example, the UK were to introduce a new version of pacs.008 to support a new offering, while other infrastructures do not. If this service is also of interest to internationally oriented market players, it would be difficult or impossible for them to take advantage of it.

Ideas on how to avoid such undesirable scenarios vary. For example, one central bank would like to see the current basic messages adjusted as quickly and regularly as possible, while other market participants would prefer to move towards the Swift network. It is also unclear who has the authority and capacity to undertake such coordination. Currently, there are several industry bodies and working groups that could play a role: the High Value Payments Systems Plus – a Swift initiative, the Registration Management Group – the ISO 20022 higher-level registration body, the regular Operator Meetings, industry associations such as the European Automated Clearing House Association, or the Bank for International Settlements' Committee on Payments and Market Infrastructures. However, the discussion is still at an early stage. In cooperation with the Swiss National Bank and in exchange with the bodies of the Swiss financial center, we as standardization specialists are actively committed to a procedure that is as pragmatic as possible, taking into account the limited capacity for change, but not neglecting the possible opportunities that result from a version change.

Martin Walder
Head Billing & Payments Standards, SIX