Harmonizing ISO 20022 Messages: Only Best Efforts Apply

Understanding unfamiliar accents and dialects can be hard, even if you come from the same country and supposedly speak the same language. Imagine how users of ISO 20022-compliant messages must feel as they struggle to process the current variants of the up-and-coming messaging standard.

Their solution: create ISO harmonization groups and hope they can reach a consensus on just what ISO 20022-compliant messages should look like. So far, their well-intended efforts have recognized that harmonized isn’t synonymous with identical. Some progress is better than the status quo.

By industry estimates, there are more than 200 projects around the world advancing ISO 20022 messages across activities involving payments, cash management, securities transactions, trade finance and treasury. If proponents of each project don’t share details to each other, the disparities between ISO messages is likely to get even worse, messaging experts warn.

For market infrastructures, such as national securities depositories and payment systems which must process thousands of messages daily, harmonization takes on an even greater urgency. They might have been able to adjust to different flavors of ISO 20022 messages as long as their only business was with players in their own back yards.  With cross-border transactions, the task becomes that much more difficult.

“We have to process messages from other depositories and financial institutions outside our home market,” explains Bernard Lenelle, senior vice president at Clearstream in Luxembourg. ” Keeping track of all the variations is like having to look up words in multiple languages in dozens of dictionaries.”

The ability to handle varied content rules and specialized extensions is giving middle and back-office operations specialists such angst that ISO 20022 harmonization groups seem to be popping up everywhere, particularly in the payments arena — from ISO’s own ISO ad hoc group to explore harmonization in real-time payments to the European Automated Clearing House recent study on harmonization to discussions sponsored by the Euro Banking Association and the European Payments Council. The common objective: interoperability with minimum drama. There is never going to be the exact same interpretation of ISO 20022 messages across all geographies and for all purposes. Even the global message network operator SWIFT has its own version of the original 20022 messages from the International Organization for Standardization (ISO), the standards-setting body.

Putting their best foot forward in the securities market, a dozen national securities depositories and payment systems including Euroclear, Clearstream, Australia’s ASX, Russia’s National Settlement Depository and Denmark’s VP, signed up at SWIFT’s annual SIBOS conference in Singapore last month to follow the ISO 20022 Harmonization Charter,  the first step in a multi-year initiative to reduce some of the messaging chaos. “The financial market infrastructures have agreed to adhere as closely as possible to a global market practice as it now exists or will exist in the future,” says Patrik Neutjens, director of the ISO 20022 implementation program at SWIFT, which is serving as a mediator of sorts. Signatories to the charter must also agree to share information about ISO 20022 usage, introduce stricter message control and release management, and publish up to date standards on a common platform, including market practice compliance.

So far, a global market standard is being embraced by infrastructures for messages involving investment funds, with other post-trade operational work involving corporate actions, proxy voting, collateral management and cash management next in line. But that global market practice standard isn’t really all that global. Variations are being allowed for local market practice, acknowledges Neutjens, as long as the securities depositories and payment systems disclose those differences on the SWIFT MyStandards platform. Such an approach for securities-oriented messages is similar to the one taken for countries which have agreed to sign up for the Single Euro Payments Area (SEPA). They will all base their messages on a core version of ISO 20022 message types to make cross-border transfers of Euro payments as easy as domestic. Individual countries, says Neutjens, will have “Additional Market Services” which are market specific, typically defined by a local SEPA community.

SWIFT has a vested interest in achieving ISO 20022 harmonization. It has been encouraging securities depositories and payment systems for well over a decade to adopt the ISO 20022 message types to replace the legacy ISO 15022 message types. The global network provider also wants to expand the reach of the ISO 20022 messages to a broader range of post-trade services, but so far has continued to tranmit the legacy ISO 15022 messages because there are still too many financial institutions not willing to make the change. The most often cited reason is the cost of swapping out ISO-15022 dependent systems for new ones that support the very different ISO 20022 message. In the meantime, “coexistence” has been accepted by SWIFT and endured by firms and infrastructures that must handle the complex process of transforming incoming and outgoing messages from one version to another.

Supporting the ISO 20022 standard becomes more complicated when financial firms and market infrastructures must accommodate variations of the message types to include different content in different fields or even the same data elements in different fields, according to Tom Debruyckere, head of digital customer experience for Euroclear in Brussels. Even worse, when SWIFT publishes a new version of a global message type, firms are not obligated to use it. They can always use the older one. That means there are different versions of the same message type floating around.

If the middle and back office systems of financial firms and market infrastructures aren’t able to interpret and process even the most minor country and participant differences, mistakes could happen. The two most common: an instruction might be misinterpreted or bounced back from the recipient. Such a possibility, no matter how small, has forced financial firms and securities depositories to go the extra mile and code their computers for every possible scenario.

Neutjens would not specify just which message types show the greatest discrepancies in local market implementation, but operations specialists tell FinOps Report that corporate action messages are likely the most divergent because of the multitude of types of corporate actions, some of which are country-specific. In the US, the DTCC has adopted its own version of the ISO 20022 message types for corporate actions, which includes a data extension to cater to US requirements. DTCC declined to comment for this article and its noticeable absence from the list of signatories to the ISO 20022 Harmonization Charter leads credence to market talk there may be more than one version of ISO 20022 messages even among market infrastructures.

The recent launch of the European Central Bank’s Target2 Securities platform, which has also developed its own version of ISO 20022 messages, is clearly serving as a catalyst for European market infrastructures to move to ISO 20022 message types for settlement activities, but that still doesn’t mean their peers across the globe will join them. The centralized T2S platform only settles European transactions passed on from the European depositories which have signed up to outsource their settlement functions. Neutjens suggests that there may be a “Eurocentric” standard for settlement and related services used by T2S and another “generic” messaging framework for settlement and reconciliation messages used outside T2S.

Even when all of the European depositories shift to the T2s version of ISO 20022 messages to communicate with T2S, they won’t be able to persuade all of their members to abandon their legacy ISO 15022 message types overnight. For now, banks and broker-dealer members of the depositories can breathe easy. Not only are the European depositories taking a phased approach to joining the single European settlement platform, but they also appear to be having hiccups. The national depositories in France, Belgium and the Netherlands, operating under the Euroclear umbrella, recently said they would postpone their use of T2S from the original timetable of March 2016 until they could be certain they were ready. They did not specify a new schedule.

Fund management firms, custodians and broker-dealers contacted by FinOps say they aren’t expecting a dramatic improvement in the Tower of Babel of ISO 20022 message formats any time soon. “We will still have to accommodate multiple incarnations of ISO 20022 messages although there might be fewer differences than before,” says one messaging expert at a custodian bank. “These efforts may affect new projects just in the planning phase now, but the ones that are already mature and in action are unlikely to change to make life easier for us.”