David Michehl Subject

MEMORANDUM

To: File No. S7-26-15

From: David Michehl

Subject: Summary of meeting with representatives from SWIFT

Date: January 28, 2016

On January 28, 2016, representatives from the Securities and Exchange Commission’s Division of Trading and Markets (Michael Gaw, Tom Eady, Yvonne Fraticelli, David Michehl, Kathleen Gross, Sarah Albertson, and Justin Pica) and Division of Economic and Risk Analysis (Narahari Phatak, Burt Porter, Walter Hamscher, Hermine Wong, Yee Loon, Mike Willis) met with Paul Janssens (SWIFT). The SWIFT representative discussed issues relating to the use of ISO 20022. In addition, Mr. Janssens provided the staff with an information paper related to ISO 20022.

Information paper

Standards – A Value Proposition for Regulators Contents

About Standards...... 3

About SWIFT & Standards...... 4

Standards & Regulation...... 6

About ISO 20022...... 8

ISO 20022 & Regional/Global Adoption...... 9

Conclusion...... 11 3

Standards – A Value Proposition for Regulators

About Standards

Norms, models, rules, measures, Rather less obvious are data or semantic Financial messaging standards sit at the systems, principles, prescriptions or standards, which can help consumers, heart of virtually all economic activity, standards: at the heart of society itself businesses and public authorities to from executing the smallest retail you will always find a shared set of understand and engage with a far wider transactions to managing massive global standards by which it lives, and through range of information, products and institutional businesses; they play a key which it interacts with the world around it. counterparts than ever before. role in enabling modern society to function Societies use standards to define objects effectively. Data standards principally define the and elements and how to perform certain meaning and format of data exchanged. Nowhere is the cause of standards in key tasks. Without standards, processes Semantic standards go a step further, financial messaging championed more become unreliable, outcomes uncertain; to describe the meaning of business enthusiastically than at SWIFT. Since trade is impeded, and consumer interests concepts and their relationships in a its genesis in the 1970s, SWIFT has are compromised. Not only do standards way that makes them understandable, worked at removing ambiguity and define what is and what isn’t acceptable, both by humans and to some extent incompatibility in how banks and financial but they also give the members of society machines, thereby aiding automation and institutions interact with each other, while a shared frame of reference by which interoperability. At their best, semantic simultaneously championing security and they can understand each other and standards can act as a model of the higher levels of automation. can consume each other’s products and business, allowing the user to map services. everything out and gain greater insights Some of the most notable “standard” into how processes and actions should successes are visible across the world be organised. “Mandating the use of and evident in everyday life – the bar Common data exchange standards ISO 20022 will enable code, or the shipping container; the light have no competitive advantage for any greater automation and bulb fitting or the screw thread. one business or organisation, but can straight-through processing offer tremendous value to everyone in a given industry, its end consumers and (STP), and a consistent “Decades ago, data were not its supervisors. By using a common set messaging standard as central to the world of of data exchange standards, resources will help reduce data can be focused where value is best financial services businesses created — by addressing business and processing risks. For high- as they are today. We now operational issues — instead of wasting value transactions, errors live in a world that is data- valuable time and incurring costs to reformat and interpret data again and can result in significant driven as never before. As again. financial losses. ISO 20022 data become increasingly Standardisation in the world of finance is aligns well with our future important, momentum less immediately evident in everyday life developments and is a tool continues to build to find than the technical standardisation such as Internet Protocol (IP), that we may be to help us future-proof ways to make our data used to, but it is just as important. With our messaging, providing better— and that’s where the growth in financial internationalisation a consistent data structure standards play a valuable and the explosion in data-driven financial activities, the importance of across all our services and role.” standardisation has recently come to the to all our different customer Linda Powell, Chief Data Officer, Office of Financial fore in a number of areas – most notably segments.” Research, U.S. Department of the Treasury, GS1 in financial communication or messaging Global Forum 2014, Brussels, Belgium, 18 February schemes, which are the focus of this Mr Lai Kok Leong, Vice President of Post Trade 2014. Services at Singapore Stock Exchange (SGX). paper. 4

Standards – A Value Proposition for Regulators

The key components of a data standard are data element names, definitions, and “Taxonomies sound boring but are actually really important. formatting rules. Data standards often They involve things like naming conventions and data include information describing procedures, implementation guidelines, and usage ordering: do you enter month-day-year like we do in the requirements. Additionally, standards may U.S., day-month-year as they do in Europe, or year-month- specify data transfer protocols, or other day as they do in Asia? Getting those kinds of simple things information that facilitates and promotes widespread use. right can be the difference between data that is unreliable, and data that can identify a hidden financial vulnerability.” Benefits of standards Commissioner Kara M. Stein, International Cooperation in a New Data-Driven World, Brooklyn Law School, International Business Law Breakfast Roundtable, 26 March 2015. — Improve data quality — Increase data compatibility — Lower costs — Reduce operational risk — Eliminate inefficiencies — Facilitate data collection and data analysis — Create new business opportunities

About SWIFT & Standards

SWIFT plays an important role in be exchanged, they also specify the order community to specify and publish Market standardisation, notably by creating and in which messages should be sent and Practice - rules and best-practice advice maintaining financial messaging standards received. on how standards should be deployed and reference data standards. Use of to meet particular business needs or to SWIFT Standards acts as Registration standardised messages and reference comply with regulation. Authority (RA) for several standards data ensures that data exchanged that define universal codes for common The SWIFT Standards group maintains between institutions is unambiguous data items, or reference data. RAs are several important message standards. and machine friendly, enabling efficient appointed by the International Organisation automation and so reducing industry The SWIFT MT standard, for instance, for Standardisation (ISO) to ensure the costs and risk. is used for international payments, cash integrity of the reference data defined by management, trade finance and treasury Financial institutions send structured ISO standards, and to publish the data business. Working with the SWIFT electronic messages to one another to in an accessible form for the benefit of community, SWIFT Standards operates perform common business processes, the user community. Examples of such the annual maintenance process for MT, such as making payments or confirming standards include the ISO 9362 Business which ensures that the standard evolves trades. In its role as a financial messaging Identifier Code (BIC - commonly referred to meet changing market needs. standardiser, SWIFT’s Standards group to as the “SWIFT” code), which is used works with the financial community to to identify parties, and the ISO 10383 SWIFT Standards, under contract to define standards for these messages. Market Identifier Code (MIC), which is used ISO, also maintains two open messaging to identify exchanges, trading platforms, standards: ISO 15022, which is used for These standards specify the data regulated or non-regulated markets and securities settlement and asset servicing, elements that can be included in the trade reporting facilities. and ISO 20022, which is scoped to all messages, document the meaning financial industry processes. The role of and format of those data elements and SWIFT Standards also contributes to the ISO 20022 is twofold: it is a methodology specify which of the data elements are formalisation and implementation of other for creating financial messaging mandatory, which are optional, and which reference data standards, notably the ISO standards, and it is a related body of are only required in specific business 17442 Legal Entity Identifier (LEI), which content which includes definitions of scenarios. is increasingly required for regulatory common industry terms, and message reporting purposes. Financial messaging The message standards also describe definitions addressing an expanding range standards specify these codes wherever the actions expected of the message of business areas, including payments, possible to minimise the ambiguity of data. receivers, and, because some business cash management, treasury, cards and processes require several messages to SWIFT Standards works with the user securities. 5

Standards – A Value Proposition for Regulators

SWIFT Standards is neutral; most work is done pro-bono, in support “The financial industry runs on information and data. of industry working groups such as Although financial data are made up of innumerable the Payments Market Practice Group (PMPG), Securities Market Practice complex and idiosyncratic components, a fundamental Group (SMPG) and Common Global building block for analysis is reference data about Implementation (CGI). Beyond the companies, organisations, and firms (henceforth referred definition of base standards, SWIFT Standards collaborates with these and to collectively as entities). Reference data might include a other communities to define, formalise number of things, but an essential component is a systematic and publish market practice guidelines, structure or code that uniquely identifies entities and their which describe how messages should be used in particular business contexts, legal relationships with parent companies and subsidiaries and to specify common recommended capable of tracking changes in these relationships over time implementations. and quickly incorporating information on newly created The financial industry already depends entities.” on a number of important standards Creating a Linchpin for Financial Data: Toward a Universal Legal Entity Identifier, John A. Bottega and processes to enable efficiency in its Linda F. Powell, July 2011. communication infrastructure and to reduce associated costs.

Standards in Global Trade the financial industry to help its customers In recent years, as communications overcome these challenges. technologies have improved and cross- The world of global trade has been border transactions have become transformed by standardisation. The most The Documentary Credit is one of the routine for many businesses, the use of obvious changes can be witnessed in the oldest financial instruments. It is an traditional trade finance, which relies physical supply chain, starting with the undertaking given by a bank on behalf of on the exchange and manual checking standardised shipping container and the the buyer of goods guaranteeing that the of documents, has declined in favour incredible infrastructure of ships, ports, seller will receive payment for the goods of ‘open account’ relationships, where trucks and warehouses that has grown as long as there is compliance with the sellers effectively trust buyers to settle around it. defined documentary requirements. their accounts on receipt of goods. An alternative payment method, the According to The Economist1, in a However, not all buyers and sellers are Documentary Collection is where the set of 22 industrialised countries, in optimal relationships in terms of risk exporter receives payment from the containerisation led to a 320% rise in and trust, and here the financial industry importer in exchange for the underlying bilateral trade in the first five years after again has a role to play, intermediating shipping documents via their respective adoption and to a 790% increase over between business partners and providing banks. Other trade instruments include the first 20 years. mechanisms to offset risks. Guarantees and Standby Letters of Less well-known is that these Credit, which provide a legal means Again, given the network nature of global developments have been mirrored by for sellers to recover funds if trade trade business, standards are required to standardisation in the financial supply transactions do not proceed as planned. ensure that banks and their customers chain; after all, for every movement of can interoperate efficiently. The most SWIFT messaging standards include a goods there will be a corresponding recent standard to be developed in this suite of definitions specifically designed movement of money, and both need context is the Bank Payment Obligation to automate processing of trade-finance to be efficient if the system is to work (BPO). This standard, based on ISO instruments, both between banks, and optimally. Cross-border trade brings many 20022 was developed jointly by SWIFT between banks and their corporate challenges on the financial front, from and the International Chamber of customers. These are in addition to the foreign-exchange and settlement risk to Commerce (ICC), and is quickly gaining SWIFT payments and treasury standards issues of trust between geographically traction as an enabler of safer global that are routinely used to support and culturally separate buyers and sellers. trade. international trade. Several standards have evolved to enable

1 “The humble hero: Containers have been more important for globalisation than freer trade”, 18 May 2013, The Economist. 6

Standards – A Value Proposition for Regulators

This is true for all financial in 1947, with a mission ‘to facilitate the organisations’, such as SWIFT. Industry communications, whatever the business international coordination and unification specialisation is at the level of Technical domain or the communication network, of industrial standards’. Today ISO is Committees (TCs). and it applies whether the counterparties a network of 163 national standards Standards are developed by expert users are financial institutions, clients, bodies, each of which represents ISO in the relevant industry; ISO oversees suppliers, market infrastructures or public in its country. ISO manages 19,500 and facilitates the process, and publishes authorities. international standards in a wide variety of the results in the form of new or revised industries. The ISO organisation is based Many of the standards upon which the standards. New or revised standards are in Geneva and employs around 150 staff, financial industry relies are governed approved by ballot. Votes are cast by the but the wider organisation consists of by the International Organisation for national standards bodies represented on 100,000 volunteers drawn from national Standardisation (ISO). ISO was formed the relevant ISO TC. standards bodies and industry ‘liaison

Standards & Regulation

Standards have a role to play in facilitating Identification is also key. The ability of efficiencies and understanding between financial institutions and their supervisors “The lack of high-quality, market participants – and also play a key to uniquely and precisely identify consistent, and accessible role in financial regulation. To be effective, instruments, counterparts and assets regulation needs to be implemented is critical to a wide array of essential data was a key source of consistently. When regulation considers business and risk-monitoring functions. risk in the financial crisis. financial data, consistency can only be Standard entity identifiers can be used Risk systems designed to achieved if all stakeholders share the to uniquely identify parties to financial same understanding of the meaning and transactions, whilst standard product assess counterparty risk, purpose of that data. This is particularly identifiers can allow for comparability interconnections, and short- true when data from multiple entities across financial products; without them term funding were strained needs to be aggregated: without uncertainty prevails. consistency at the source, it is impossible because, in part, the data Regulators have long used financial to guarantee the validity of data when they required and even data from a variety of sources in combined, and somewhat unsafe to infer their economic analysis of rules, risk the reports they generated conclusions from it. assessment and market supervision lacked standards for basic initiatives; to support enforcement actions data identifiers, elements, and compliance programs. and terms. Regulators “Stronger and more The need for clear accepted standards consistent financial data has been well understood by regulators and policymakers were standards will enhance for some time now and particularly caught trying to aggregate since the progressive rise in market information from disparate financial stability by oversight activity underway before addressing a major deficiency the emergence of the financial crisis systems, each with proprietary that impairs decision- in 2008. The G30 Report of 1993 naming conventions laid some useful groundwork in risk for counterparties and making. Data standards, analysis and mitigation measures, the when implemented EU-Commission-sponsored Giovannini instruments. Differences in appropriately, will promote Group identified specific, addressable the amount and consistency barriers to European integration of of information on terms and data transparency, securities clearing and settlement, and comparability, and quality, the drives toward effective single markets conditions of the data meant enabling aggregation of in European investment funds (ref UCITS), that even when common cash securities markets (ref MIFID), and transactions were identified, risks, financial stability Euro payments (ref SEPA) were already monitoring, and better firm in full flight, as were US initiatives to there was limited assurance risk management.” increase the transparency of process that they could be compared accountability, amongst other things (ref with certainty.” OFR – Promoting Data Standards, OFR Annual Sarbanes Oxley). Report 2012. OFR – Promoting Data Standards, OFR Annual Report 2012. 7

Standards – A Value Proposition for Regulators

Both need a window into the highly For market participants, the ongoing slew “The LEI promises a complex linkages that tie firms together. of differing reporting requirements means significant changes in operational practice, wide array of benefits. It is It was in direct response to this need business structure and reference data that the ISO17442 Legal Entity Identifier expected to save enormous management to build an effective strategy (LEI) was created, and an issuance sums that the financial for regulatory compliance. It can mean and governance structure incorporated costly duplication, and increased scope industry spends on cleaning, around it. The LEI is a unique, 20-digit for error. The outlook for market and alpha-numeric code, which makes it mapping, and aggregating prudential supervisors is little better; they possible to identify all the legal entities disparate data and on face a patchwork of disparate reports, involved in a financial transaction. The LEI containing distinct but overlapping data reporting data to regulators. is designed to reduce costs in collecting, sets, submitted in divergent formats. Precise identification of cleaning, and aggregating data, and counterparties would in reporting data to regulators. The LEI Two problems clearly need to be also helps regulators better monitor and addressed. Firstly, how to express also give firms a clearer analyse threats to financial stability. requirements for monitoring information in a way that will yield clear, consistent picture of their exposures The LEI solves an important but still and uniform data, with confidence that in the marketplace. For small part of the data consistency regulated entities and their supervisors will: financial regulators, such problem. Not only do entities need to be identified – but data reporting needs — Understand the required data identification would provide to be consistent. Post-crisis, much of definitions in a uniform way, and the regulatory development has taken insight into ways shocks — Provide reporting that reflects this place under the umbrella of agreements can spread across financial uniform understanding. reached by the G20 leaders at summit markets and would help in meetings since 2009 – agreements which Secondly, how to impose such identifying vulnerabilities in have placed paramount importance on requirements on an industry that is already the financial system.” reporting. Although the G20 agreements struggling to maintain pace with the rate are intended to foster a global approach at which new directives, regulations and Linda Powell, Chief Data Officer, Office of to ensuring the soundness of financial other authoritative requests for regular Financial Research, U.S. Department of the information present themselves? Treasury at the GS1 Global Forum 2014, Brussels, markets, differences are emerging across Belgium, 18 February 2014. markets around the timing, scope and Finally – assuming that there is no magic content of regulatory reforms. Within All those involved in these initiatives at the bullet that will bring about a solution to some geographies, there are even time, recognised the need to harmonise the above, what short-term measures differences emerging between markets. data definitions as a necessary precursor can be adopted in the interim, to enable A plethora of reporting requirements have to successful implementation of their more effective oversight whilst respecting emerged since 2009, some focused on visions. Indeed, some individual market the overall need for market- and vendor- entities, others on products; some on silos managed to make some progress neutrality, in service of the public good? markets, others on geographies. So In towards this goal (ISDA documentation some cases reporting mechanisms and In order that regulators can be and FpML for OTC derivatives, data sets have been specified, in others confident about correct interpretation of ISO 20022 for SEPA and Giovannini, etc) they have not. requirements, and regulated institutions – but not enough. can be equally confident about correct The crisis magnified the scale and nature interpretation of reports, the financial of the data consistency problem, and “Data standards can increase world needs a single, authoritative library of financial data definitions, to which data brought it into the open. Just as banks efficiency and reduce costs were trying to identify their counterparty components of every relevant transaction risk, the lack of any authoritative data for not only the industry, but can be traced. enabling unique and unambiguous also regulators. Developing This paper contends that this single identification of counterparties surfaced a consistent reporting standard set of definitions exists: to an unprecedented degree. The 2008 ISO 20022 - the Universal Financial financial crisis demonstrated the opacity convention will improve data Industry Message Scheme. ISO 20022 and lack of understanding about the quality and cross-market defines the platform for the development linkages between market participants and international data of financial message standards. Its and between assets. Both participants business modelling approach allows and regulators rapidly realised that as the harmonisation as envisioned users and developers to represent system permits interconnectivities through by the G20.” financial business processes and complex transactions and products that Keynote Address by Commissioner Scott D. underlying transactions in a formal but cross jurisdictions, regulators and firms O’Malia, The Future of Financial Standards – syntax-independent notation. These need tools to monitor and understand SWIFT Institute, SWIFT’s Standards Forum, and business transaction models are the the London School of Economics and Political what is going on. Science, London, England, 25 March 2014. “real” business standards. 8

Standards – A Value Proposition for Regulators

About ISO 20022

ISO 20022 – “Universal financial into a broader framework – ISO 20022. meaningfully compared or aggregated, industry message scheme” is the Through participation in the SCG, each and the policy goals of the regulation can open methodology for developing new organisation responsible for a financial become difficult or impossible to achieve. financial messaging standards and for standard (FIX, FpML, SWIFT, XBRL, ISITC The more precisely each data element in harmonising existing financial messaging and FISD) affirmed its commitment to the a report is specified, the more likely it is standards. ISO 20022 is an initiative ISO 20022 methodology and business that implementers of the regulation will of the International Organisation for model as this framework. submit consistent data – and the easier Standardisation (ISO). ISO 20022 was it is for the supervisory community to All standardised financial business conceived to harmonise the fragmented examine the data. processes have been, or will be, financial standards landscape, and incorporated in the ISO 20022 business By providing a universally agreed can best be described as a ‘recipe’ model and the ISO 20022 methodology language that can be shared by business, for developing financial messaging supports the creation of new legal, and technical experts, ISO 20022 standards. The main ingredients of this ISO 20022-compliant messages to greatly simplifies the interpretation and recipe are a development methodology, support each business process. Although implementation of any regulation defined a registration process, and a centralised, ISO 20022 allows coexistence of legacy in that language. Regulations defined in machine-processable “e-Repository”. domain-specific syntaxes and protocols terms of ISO 20022’s unique conceptual ISO 20022 is an open standard. It is in certain circumstances to protect the Business Model and Business Process not controlled by a single interest and investments of market participants, layer allow implementers to understand is open to anyone in the industry who it lays the groundwork for a common both the regulated financial concepts, wants to participate. It is free for anyone financial messaging standard, and clearly and the contexts in which the regulation to implement in any business or software communicates that direction to the entire is applicable. environment, or on any network. industry. ISO 20022 is also appealing to regulatory The first edition of the ISO 20022 Several proofs of concept have initiatives because it is an open and standard was published in December successfully demonstrated the technical transparently governed standard that is 2004. In the ensuing decade the feasibility and value of the ISO 20022 platform neutral, and free to download, ISO 20022 Methodology has been approach to domains where legacy implement, and extend. applied to standardise data definition syntaxes are still widely used. The financial industry already depends and messaging exchange across many Based on these successes, ISO TC 68, on a number of important standards financial business processes, including Working Group 5 has begun work on a processes to enable efficiency in its retail and wholesale payments, foreign new part of the ISO 20022 standard to communication infrastructure and to exchange, securities lending, repo formalise a semantic model for finance reduce associated costs. This is true for transactions, collateral management, that will accelerate alignment of legacy all financial communications, whatever the securities settlement, asset reconciliation, standards to ISO 20022. This project business domain or the communication and more. will build upon the formal, machine- network, and it applies whether the Today, to avoid duplication of effort and processable traces between the different counterparties are financial institutions, to ensure that all new messages are levels in the ISO 20022 repository to clients, suppliers, market infrastructures consistently developed, ISO Technical make this tracing more open to other or public authorities. committee 68 (Financial Services) requires financial syntaxes. Many of the standards upon which the that all financial message standardisation Financial standards take a long time financial industry relies are governed initiatives follow the ISO 20022 to get established, and even the best- by the International Organisation for Methodology. Authoritative and clear designed standards take off only if they Standardisation (ISO). ISO was formed semantic definitions of financial data meet real and immediate needs in the in 1947, with a mission ‘to facilitate the have been at the core of the ISO 20022 market. For ISO 20022, that moment international coordination and unification standard since inception, and it is being seems to have arrived. More than 70 of industrial standards’. Today ISO is adopted as the natural language of major initiatives around the world have a network of 163 national standards financial transactions by communities committed to ISO 20022, covering bodies, each of which represents ISO in its throughout the world. ISO 20022 aims payments, cash management, treasury country. ISO manages 19,500 international to provide the financial industry with a and securities. standards in a wide variety of industries. common platform for the development of The ISO organisation is based in Geneva messages. In the context of regulatory reporting and employs around 150 staff, but the and data aggregation, it is critical Today, multiple messaging standards are wider organisation consists of 100,000 that all reporting entities interpret the used in the financial services industry. To volunteers drawn from national standards specification of the data to be reported in reduce friction and implementation costs, bodies and industry ‘liaison organisations’, the same way. Without this consistency, a Standards Coordination Group (SCG) such as SWIFT. Industry specialisation is at data from different entities cannot be was established to align these standards the level of Technical Committees (TCs). 9

Standards – A Value Proposition for Regulators

Standards are developed by expert users in the relevant industry; ISO oversees SWIFT Standards & ISO 20022 and facilitates the process, and publishes SWIFT Standards has been part contract to ISO, SWIFT Standards the results in the form of new or revised of the evolution of ISO 20022 from also operates as the Registration standards. New or revised standards are the beginning. SWIFT drafted the Authority for ISO 20022, which approved by ballot. Votes are cast by the original specification as part of the maintains the technical infrastructure national standards bodies represented on ISO working group that developed of the standard, ensures technical the relevant ISO TC. the standard, and remains the single consistency, and publishes the largest contributor of content. Under content in a variety of formats.

ISO 20022 & Regional/Global Adoption

ISO 20022 is being adopted globally ranging from live implementations to of the relationship between FMIs and their across the financial industry. ISO 20022 communities that are in the early stages customers. Standards are used in many standards have been developed across of market consultation. Many of these are types of business process, some of which many financial business processes detailed in the freely downloadable ISO are inherently ‘many to many’ — that including retail and wholesale payments, 20022 Adoption mApp for iOS tablets is, they involve many peer organisations foreign exchange, securities lending, repo that is published by the RA2. interacting with many others — rather transactions, collateral management, than point to point. There are many reasons why financial securities settlement and asset market infrastructures (FMIs) in particular A good example is foreign exchange reconciliation, and central banks and have become early adopters of ISO market confirmations. Currencies are market infrastructures across the world 20022. One is timescale: FMIs tend traded widely, with many counterparts are now increasingly using the standard to plan with longer time horizons than involved. This makes it difficult for a across these markets, with around 70 other businesses, so the appeal of a new standard to displace an old one, payments and securities clearing and well-managed, technically advanced and whatever its technical merits, because settlement systems implementing adaptable standard is obvious. A second of the difficulty of migrating a large and ISO 20022. is regulation: regulators understand that disparate user base. But FMIs can act as For example, in the US the Fed has the services provided by FMIs provide a catalyst for change, and an organising declared an intention to implement critical steps relied upon by multiple force in the adoption of ISO 20022. ISO 20022 for US payments and DTCC is parties across the finance sector and are Finally, FMIs are aware that their using it for its Corporate Actions service. likely, as a result, to require the use of ISO participants, such as global banks, have In Asia, ISO 20022 is used by the Chinese 20022 to drive safety, accessibility and many other infrastructures with which domestic payments system, CNAPS. It efficiency in those processes. they need to work. As responsible actors is also used by the Japanese securities For example, the European Central Bank in the global financial system, they depository, JASDEC, the Singapore stock has recommended that the Real Time recognise that adopting the same ISO exchange (SGX), the Australian stock Gross Settlement System (RTGS) built by 20022 standard as their peers around the exchange (ASX), and it has been chosen the Eurosystem — TARGET2 — should world can help to achieve greater safety as the standard for the forthcoming adopt ISO 20022. This is partly to ensure and economies of scale at the global Australian real-time payments system. that the payment leg of a securities industry level. ISO 20022 is also the standard used for transaction will be consistent with the ISO messaging by strategic initiatives such as The first FMIs to implement ISO 20022 20022-based settlement process defined the Single Euro Payments Area (SEPA), were drawn from the payments industry. for TARGET2-Securities (T2S), the single the ECB’s TARGET2-Securities, and The European legislation that led to the securities settlement system for Europe upcoming migrations of TARGET2 and creation of the Single Euro Payments Area that is expected to begin operations in EBA (EURO1/STEP1). (SEPA) mandates the use of ISO 20022 2015. as a common format. By standardising At time of writing, the ISO 20022 As FMIs are at the forefront of ISO 20022 information exchange in this way, ISO Registration Authority (RA) is aware of adoption, a third reason is the ‘topology’ 20022 is making a crucial contribution around 200 ISO 20022 initiatives globally

2 Search for ‘ISO 20022’ in the Apple AppStore. 10

Standards – A Value Proposition for Regulators

to achieving the SEPA goal of replacing schemes, from RTGS systems handling national payments arrangements with high-value payments, such as the India an integrated system for euro payments RTGS, to low-value payments systems, (credit transfers and direct debits) across such as the STEP2 system operated 28 member states of the European Union, by the Euro Banking Association. In the four members of the European Free addition, the New Payments Platform Trade Area plus Monaco and San Marino. (NPP) proposed by the Reserve Bank of Australia specifies ISO 20022, as does Since the migration to SEPA began, the Canadian Payments Association, a number of other ISO 20022-based which operates the retail payments initiatives have gone live in a variety of infrastructure in Canada. markets. They cover a range of payment

The figure above is a screenshot from the ISO 20022 Adoption mApp, which contains information about ISO 20022 adoption worldwide. It is available free from the AppStore or from www.iso20022.org, as an IOS App or as a PDF. The screen shows the number of active communities adopting ISO 20022 per country. Useful information on each initiative is available by “zooming in”. 11

Standards – A Value Proposition for Regulators

Conclusion

Standards, and the ISO 20022 standard Moreover, once the data elements for a in particular, are being adopted “A great deal of work still business process have been identified, worldwide, to stabilise risk-bearing needs to be done to ensure it is straightforward to create a message data exchange throughout the financial definition that can be used to transport industry, to reduce costs, and to remove that the data reported by the data. In these definitions it is possible barriers to interoperability. industry and collected by to distinguish a baseline set of common details and national or regional additions, ISO 20022 messages are quickly regulators will be as useful as facilitating tailored reporting at national or becoming recognised as the natural possible, or we will be at risk regional level, as well as the consistent transaction language of market of not achieving that goal. reporting required at global level. infrastructures, which means that individual market participants are The data are fragmented, If the regulatory community is interested embedding them already into core with many different to use ISO 20022 as the methodology for transaction processing systems. trade repositories, within developing financial messages and data sets, SWIFT Standards is ready: The data model which lies at the heart and across jurisdictions, of ISO 20022 is a potential reference — to provide orientation, education and point to help regulators and market collecting different kinds of training to help regulators understand overseers to require, harvest and interpret information in different ways, the full potential value of messaging data which is unambiguous, clear and keeping us from putting and reference data standards in their equivalent from one source to another. context; all of that information Reference data standards, such as the — to host and participate in workshops LEI, are used within and beyond financial together to develop a full to exchange information and ideas messaging, to define the context within picture of the market. We about where and how standards can which transactions take place in a need to roll up our sleeves be used to address core issues and similarly uniform manner. concerns of the regulatory community, and address any obstacles and There are compelling reasons for the market oversight community to adopt and to making these data useful — to complete definitions as required use standards, amongst which effective for market participants in the existing business model and aggregation and comparison of data are and for regulators who add any additional content required prime examples. as a pro-bono contribution to market are monitoring financial oversight, the end-users of the Understanding how the application financial markets and ultimately, the of standards can help the community stability.” common good. requires some familiarity with the content, Testimony Of Acting Deputy Secretary And Under Secretary Of The Treasury Mary J. Miller Before governance, real-world implementation The Senate Committee On Banking, Housing And and limitations of standards; and likewise, Urban Affairs 6 February 2014. SWIFT Contacts: the standards community needs to learn about regulatory practices in order to Stephen Lindsay, provide relevant assistance. As shown above, the rigour and precision Head of Standards Tel: +32 2 655 3000 SWIFT Standards exists to help financial of the definitions found in the ISO 20022 [email protected] organisations develop and use its business model make it an excellent financial messaging and reference data resource through which to ensure that Andrew Muir, standards, and to learn about how data elements specified in a regulatory Head of Standards Operations such organisations operate as part of reporting context are interpreted Tel: +44 207 762 2000 its mission of continuous evolution and consistently by implementers. [email protected] improvement of standards, as well as related products and tools. Legal notices About SWIFT SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,800 institutions in more than 200 countries. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest.

Confidentiality This document contains SWIFT or third- party confidential information. Do not disclose this document or the information it contains outside your organisation without the prior written consent of SWIFT.

Trademarks SWIFT is the trade name of S.W.I.F.T. SCRL. The following are registered trademarks of SWIFT: SWIFT, the SWIFT logo, the Standards Forum logo, 3SKey, Innotribe, Sibos, SWIFTNet, SWIFTReady, and Accord. Other product, service, or company names in this publication are trade names, trademarks, or registered trademarks of their respective owners.