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How ISO 20022 adoption in corporate treasury will change regulatory expectations for fincrime compliance – Learn & share



This thought leadership article is a part of the Learn & Share section at CTMfile, which encourages practitioners to share their perspectives on cash and treasury management.

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In November this year, the ISO 20022 revolution switches gear to accelerate the operationalisation of these standards in the SWIFT community. The new open global standard for financial messages aims to provide “consistent, rich, and structured data that can be used for every kind of financial business transaction.” SWIFT believes that the shift away from its decades-old model will “unlock huge opportunities for financial institutions.”

While ISO 20022 is set to offer a wide range of benefits for both consumers and financial institutions alike, its implementation will certainly bring challenges for corporate treasury teams – not least because regulatory expectations are changing. Perhaps most fundamentally, the “common language” of worldwide payments will be different. The standard SWIFT format currently includes the volume being transferred, the currency, the beneficiary’s name, bank, and address. This approach has been relatively stable for decades. However, technology, processes and risks have evolved as a faster pace, necessitating a new approach. ISO 20022 will bring in a huge amount of new information, in a richer structure and with more meta-data. These changes will be the catalyst for new products and payments operations processes.

Adapting to the new model

Financial institutions need to ensure that the tags and fields in the new ISO 20022 format are properly understood by their screening systems. Likewise, operational teams will need to be effectively trained on the new model. All of these changes will also need to be reflected within internal business practices, and updates to institutions’ policies, procedures, formatting, budgets, and systems will undoubtedly be required.

This won’t be an easy task. One major impediment to quick and seamless adoption is that banks are having to overturn their payment systems and replace whole swathes of legacy technology stacks with more sophisticated solutions. Inevitably, it’ll also take some time for employees to get to grips with this huge cultural change. However, navigating these shifts successfully will be crucial if financial institutions are to perform their duties when it comes to fincrime compliance and mitigating sanctions-related crime.

Integration and protection

Despite the challenges in implementation, ISO 20022 is set to bring profound benefits, both for financial institutions and their clients. For one, the more sophisticated use of data will make it easier for businesses to detect and prevent financial crime.

Current messaging standards are limited by the fact that key pieces of information, such as names and addresses, are often truncated or only semi-structured, making it much harder to see the full picture or to verify identities. ISO 20022 resolves this. The deployment of enriched data, with more detailed and better structured reference information, will enable more efficient data collection and tracking. In turn, this promises to make it easier for compliance teams to flag suspicious activity and respond to fincrime when it arises. Improved efficiency and higher-quality data will offer financial institutions the ability to establish enhanced fincrime controls.

On a wider level, the adoption of ISO 20022 will also allow financial institutions to integrate with a growing global payments community. After all, over 70 countries have already adopted the standards. As more countries and institutions join them, the messages will be harmonised with payment systems around the world.

This will not only make the process more efficient for banks on the SWIFT network, but will significantly improve customer experience. Because ISO 20022 works across a wide range of many different payment systems, this will improve resilience and ensure customers are always able to access financial services. Should one system be affected by an outage, messages can simply be re-routed through another one, significantly reducing the impact on individual users. More broadly, the new infrastructure will also help to cut costs, as well as drastically reduce the amount of time transfers take. Put simply, transfers will be quicker, easier, and cheaper.

An ever-improving experience

Going forward, ISO 20022 will also set the groundwork for a more dynamic and flexible payments industry over the long-term. The standards are specifically designed to be able to adapt more easily than current messaging standards. This means that they’re more responsive to shifts in the economy and better equipped to navigate global trends. And because they’re more pliable than legacy standards, ISO 20022 also facilitates the integration of new emerging technologies. All of this could mean that customers benefit from an ever-improving experience as innovation drives progress and further improvements.

ISO 20022 is a major moment for an industry that continues to grow in size, scale, and significance. EY estimates that global cross-border payment volumes will reach US$155.9 trillion this year, up from $127.8 trillion in 2018. That’s a promising trajectory – but there’s still work to be done. Financial institutions will need to adapt to changing regulatory expectations and ensure their fincrime processes are fit for purpose in an ISO 20022 world. Should they manage to do this, the benefits for both them and consumers could be significant.

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