International payment systems will have to migrate to the ISO 20022 standard of the International Organization for Standardization (ISO) in interbank payments by November 22, when the co-existence period with MT messages ends.
Lessons learnt so far
European banks, payment institutions and the euro area clearing and settlement systems have already adopted the standard.
Putting aside the benefits of international interoperability, ISO 20022 has demonstrated that it works in a variety of environments.
Notably, the European Payments Council’s (EPC) four payment schemes (Sepa credit transfer, SCT; Sepa instant credit transfer, SCT; Sepa direct debit, SDD; and one-leg out instant credit transfer, OLO) migrated to the 2019 version of the ISO 20022 standard in March 2024.
Giorgio Andreoli, the EPC’s director general, highlights that readiness was key, adding: “EU Regulation 260/2012 stipulates that the standard for message format referred to in Article 5(1)(b) and (d) of that same regulation must be ISO 20022. The amendments to this regulation that entered into force in April 2024 (see EU Regulation 2024/866) did not change this.”
Regulation (EU) No 260/2012 of the European Parliament and the European Council established technical and business requirements for credit transfers and direct debits in euro, making the ISO 20022 standard mandatory in transactions between banks and their customers.
The ISO 20022 data dictionary and flexible message format used to convey payments, status code and returned transactions has shown itself to be adaptable in other territories. This is already in use in the UK within the Chaps high-value payment system, explains Jonathan Williams, payments specialist at the UK Payment Systems Regulator. “Since the launch of the Faster Payment System, all new retail payment systems have supported ISO 20022 and have demonstrated its capability,” he says. “Putting aside the benefits of international interoperability, ISO 20022 has demonstrated that it works in a variety of environments.”
Some potential bumps on the way
Although ISO 20022 is emerging as a global payment messaging standard, a UK Finance spokesperson raises concerns about a lack of consistency in adoption. Careful sequencing of regulatory changes is equally crucial to ensure smooth implementation and avoid disruption.
It is anticipated that the relevant communities will address proposed changes to the standard due to regulatory developments
“Public authorities play a crucial role in working with the industry to establish clear guidance for consistent use of the standard,” says the spokesperson. “The Committee on Payments and Market Infrastructures (CPMI), for example, has considered harmonised data requirements for the use of ISO 20022 messages in cross-border payments.”
Certain payments regulations, such as the US Travel Rule, require complete data to be transmitted intact through the processing chain, including payer and payee information. “Since many cross-border payments originate or are settled in payments market infrastructures, it is important to ensure that data can be relayed without loss or truncation and adopting the same standard end-to-end is the best way to achieve this,” says Stephen Lindsay, head of market infrastructures and standards services at Swift.
However, this brings some challenges that could impact the implementation of ISO 20022 across different jurisdictions, says Barry Tooker, US Faster Payments Council (FPC) member and principal of TransactionBanker.com. “ISO 20022 enables the transmission of enriched and structured data, which includes detailed payment information such as payer and payee details,” he continues. “This raises concerns about compliance with data privacy laws such as the EU’s GDPR, the California Consumer Privacy Act (CCPA) and other regional data protection regulations.”
Confidence in a future-proofed payment message
Looking ahead, payment industry bodies and standard setters are largely confident that ISO 20022 will be able to accommodate future regulatory changes.
“It is anticipated that the relevant communities – including those from Europe represented in the various ISO 20022 standardisation bodies – will address proposed changes to the standard due to regulatory developments,” suggests the EPC’s Andreoli.
Swift’s Lindsay highlights that new ISO 20022 messages have been created to enable regulatory reporting. “For example, in the securities domain, ESMA created ISO 20022 messages for reporting of internalised settlement and settlement fails under CSDR,” he adds. “There are many examples of instruction messages and guidelines being modified to support compliance with regulation.”
According to Tooker – who has served as chair of the FPC’s cross-border payments work group – its robust framework and governance model provides confidence in ISO 20022’s ability to evolve and accommodate future regulatory changes. “The standard is designed with a highly flexible and extensible data model, which allows it to adapt to new requirements,” he adds. “Its strong alignment with global initiatives and emerging technologies positions it as a critical standard for the evolving financial landscape.”
ESMA’s take on ISO 20022
The European Securities and Markets Authority (ESMA) has proposed the consistent application of the ISO 20022 standard across multiple reporting regimes, and expects this to reduce the reporting burden and increase the quality and usability of data for its users, which include not only authorities but also market participants and the public in cases where data is disseminated using the standard.
It describes ISO 20022 as offering a robust methodology, allowing for the development and adaptation of messages for different needs, including not only regulatory reporting but also data exchanges between market participants supporting core business processes.
