Information Paper ISO 20022 Implementation Strategies

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ISO 20022 Implementation Strategies ISO 20022 Contents Implementation Strategies

Introduction 3

Putting the community at the centre 4

Green-field versus migration 4

Many-to-MI versus Many-MI-Many 5

Generic best practice and risk mitigation 5

Implementation approaches 6

Phased versus big bang 6

Phased implementation 6

Big bang 8

Hybrid approaches 8

Standards maintenance 8

‘Like-for-like’ - benefits and pitfalls 8

ISO 20022 harmonization 9

Conclusions and recommendations 9

Appendix A - Case studies 11

Appendix B - Introduction to ISO 20022 28

2 ISO 20022 Introduction Implementation Strategies

Over the last 10 years, ISO 200221 Although each case is different, At the time of writing (Q2 2017), has emerged as the key global ISO 20022 is typically chosen for several important industry FMIs standard for new or modernized a combination of the following have successfully migrated to financial market infrastructures reasons: or implemented ISO 20022 (FMIs). There are various drivers for and others have declared these initiatives: -- An open standard, not implementation timelines for the controlled by a single years ahead, many in the period -- Compliance with regulation that commercial interest; 2020 to 2022. The purpose of this mandates ISO 20022; -- Covers all financial industry paper is to gather in one place -- Renewal of legacy technology; business domains; some of the experience gained by -- Provision of new infrastructures -- Supports useful features, the industry implementing these to improve market efficiency; such as non-Latin characters initiatives; to understand what -- Regional integration or or, for payments, Extended worked well; what perhaps worked Remittance Information (ERI); less well, and to distil some high internationalisation of domestic -- Easy to integrate with modern level best practice advice for the services; computing platforms; benefit of those still to make the -- Harmonisation of legacy -- Facilitates interoperability with change. domestic standards; other ISO 20022 FMIs; -- Enabling and encouraging new -- Enables re-use of existing This material is illustrated entrants in existing markets or industry investments in and reinforced by a series of schemes; ISO 20022 infrastructure; implementation case-studies from -- Provision of new services in -- ‘Future-proof’, as it can adapt around the world. (See Appendix answer to new business needs; to new technologies as they A.) -- Realisation of efficient end-to- emerge. end business processes.

1 See Appendix B for an introduction to ISO 20022

3 ISO 20022 Putting the community Green-field versus migration Implementation Strategies at the centre

As noted above, there is a variety of different A common distinction between projects that drivers that might prompt an FMI to adopt informs much of the planning is between ISO 20022. In planning an implementation, it green-field implementations and migrations, is important from the outset to be clear about where green-field refers to entirely new FMIs, which of these are the most important for or existing FMIs expanding in a new area, and the initiative, because this will influence many migration to situations in which existing FMIs later implementation decisions. For example, and their communities switch from a legacy if the motivation is to provide a competitive standard to ISO 20022. level playing-field for new participants, this will lead to an approach that emphasizes ease In practice, this distinction is rarely as clear-cut of access and implementation over extensive as it may first appear. An entirely new system, new functionality. Equally, if the purpose is to such as an instant payments solution, rarely respond to competitive pressure by delivering emerges in a vacuum. In this case, even or enabling new added-value capabilities, an though the service is new, transaction types approach that focuses on new functionality that use older services, such as ACH, will and easy extensibility will be preferred. still need to be migrated. Equally, when an FMI undergoes a major refresh it is often an In any case, implementation of ISO 20022 by opportunity for the operator to introduce new an FMI needs to be planned as a community participants with no experience of the older effort. Decisions about the style, speed and system and no implementation to update. It is scope of a project must consider the widest also common to introduce new capabilities for set of stakeholders: direct participants, but which there is no legacy equivalent, and will also indirect participants (institutions that therefore be new for all participants. Overall, access the FMI via a third party), regulators, this means there may be useful techniques vendors, service providers and consultants. and experience gained in migration projects Effective two-way communication and that are relevant to green-field and vice versa. dialogue are critically important. Even where there is a strong overall business case, it is important to understand that the benefits of implementation may not be felt equally by all participants although all will likely bear some part of the cost. Campaigns need to set out a broad and compelling vision but also address the narrower concerns that might impact particular segments. Planners should also take the time to understand the practical implementation needs of the various different types of stakeholders in their communities and ensure that the deliverables of the project include the documentation, tools and other artefacts they will need to implement the standard correctly, on time, and at acceptable cost.

It should also be recognized that participants in an FMI’s community will in many cases also interact with other similar FMIs. It is therefore important that FMIs work with their domestic and international peers to ensure that, as far as possible, a harmonized approach is taken to the implementation of ISO 20022.

4 ISO 20022 Many-to-MI versus Many- Generic best practice and Implementation Strategies MI-Many risk mitigation

Another consideration that dictates migration There are several approaches to implementing choices is whether the proposed ISO 20022 ISO 20022 in a community that will be message flows are solely between individual covered in the sections that follow, but institutions and the market infrastructure whatever the approach there are a number of (Many-to-MI), or more than one participant, basic recommendations that always apply: in addition to the FMI, is involved in each –– Involve participants from the very transaction (Many-MI-Many). In Many-to- start of the project (migration strategy, MI scenarios, such as TARGET2-Securities preparation of specifications, etc.); interoperability between participants is less of a concern than for Many-MI-Many, such as a –– Set clear goals, milestones and timelines Real-Time Gross Settlement System (RTGS), for the community and communicate where participants will have to interact with them, and the progress made towards one another, as well as with the central service them, broadly and regularly; to complete a payment transaction. –– Provide detailed and accurate business and technical specifications with a well- governed release cycle; –– Facilitate community testing – provide test services to allow participants to test against the central FMI implementation (or a simulation of it), and with their peers; –– Consider providing (or encourage the market to provide) ‘connector’ products: solutions that can be implemented by participants to ensure adherence to the standards and business rules of the service – ideally accessible to all participants in terms of both price and technology; –– Provide tools to ease the transition for participants, e.g. local or central translation; storage of overflow data; –– Where local translation (i.e. implemented by the participants) is proposed, publish standard translation rules to ensure all participants translate in the same way.

5 ISO 20022 Implementation approaches Implementation Strategies

Phased versus big bang Phased implementation

In practice, the vast majority of ISO 20022 Many-MI-Many implementations have been phased in some In Many-MI-Many migrations, a phased way. The alternative ‘big bang’ approach – approach brings the added complexity that where all participants go live at once for all participants need the ability to transact with functionalities - may in some circumstances one another during the transition in cases be necessary. However, big bang depends where one has migrated to ISO 20022 and the on the FMI and all its participants being ready other has not. on the day with compatible implementations, which brings a number of challenges. One approach is described in Case Study 1 (SIX Interbank Clearing). This is a migration Phasing can take several forms. In some from a local domestic standard to a richer cases, all participants go live together but ISO 20022 format. In this case, migration is only for a subset of transaction types; the phased by institution. The central FMI provides phases being the incremental addition of two migration services: translation between new transaction types, moving away from a legacy and ISO 20022, and a repository in legacy platform. Alternatively, phasing can be which legacy format users can look up data Figure 1: Many-MI-Many achieved by introducing batches or ‘waves’ lost in the transformation from rich ISO 20022 of participants one at a time until the whole to legacy. It works like this: at the beginning, community is migrated. Often both are used all banks use the legacy format. When each in a single initiative, for example a wave-by- bank’s migration slot comes up, it is required wave take-on of the community followed to send and receive ISO 20022, and can by incremental implementation of new immediately start to use the additional features instruments or transaction types. of the standard. Messages from un-migrated banks are converted centrally to ISO 20022 Some projects combine the phased with the before receipt. Messages sent to un-migrated big bang approach. banks in ISO 20022 are converted to legacy format before delivery. In case this results in data truncation or loss, the original ISO 20022 message data is stored by the FMI or a messaging service, and a ‘truncation flag’ in the legacy format alerts the receiver that more payments data is available in the central system. Once the final bank has migrated, and all participants are exchanging ISO 20022, the central translation and data storage services are decommissioned.

6 ISO 20022 Implementation Strategies

Another approach to phasing a Many-MI- Many-to-MI How long should a phased Many migration is to require all banks to be Many-to-MI implementations are in principle implementation take? able to receive ISO 20022 but introduce more straightforward than Many-MI-Many Although phased implementations aim to sending of ISO 20022 in phases. There is no because interoperability between participants reduce risk, they can introduce risks of their obligation initially to send ISO 20022, but all is less of a challenge. The focus for the FMI is own if they take too long. It is difficult to participants are required to switch to sending on on-boarding its community with as little risk add new capabilities to a system while a ISO 20022 before the end of the transition. as possible. A phased approach allows on- migration is on-going; maintaining technical During the transition, ISO 20022 content is boarding to be controlled and any operational co-existence measures during a migration limited to ensure backward compatibility with issues with the new system to be addressed introduces cost and operational risk; and there the legacy format it replaces (‘like-for-like’), but while volumes are low. TARGET2-Securities is is also the danger of simply losing community the moment the migration is over, participants a new infrastructure in Europe, so a green-field momentum. So although all projects will vary, are free to use a fuller version of ISO 20022 implementation. The approach followed by the clear recommendation is to make phased with new features enabled. The length of the T2S was an implementation in waves, starting migration periods as short as possible while transition period, and the ultimate requirement with lower-volume participants, and building still consistent with the goal of implementation that all participants be able to receive and up to the largest in later waves. This allowed risk reduction. send ISO 20022 is communicated continually the operators to gain experience with the new before and during the transition, and the system and identify and address processing migration of individual users to sending status and operational concerns before having to is monitored and managed. SEPA (Case Study contend with high volumes. 6) is a variation of this approach.

These proposals successfully address issues uncovered in earlier migrations in some markets. In one example, central translation was implemented to ease the transition, imposing a ‘like-for-like’ ISO 20022 implementation on users. The long-term plan was to offer translation services as a temporary measure while participants upgraded to ‘native’ ISO 20022, then switch translation off. However, no formal end-date was announced for the translation service, and no clear roadmap setting out the benefits and specifications of a native ISO 20022 implementation was communicated. Because like-for-like ISO 20022 offered few business benefits, and central translation obviated the need for any development, most banks continued to use the legacy format, and the migration stalled. Figure 2: Many-to-MI

7 ISO 20022 Implementation Strategies

Big bang Hybrid approaches ‘Like-for-like’ - benefits and pitfalls Many-MI-Many The US Federal Reserve (Case Study 2) Big bang migration may be required in a originally proposed a phased implementation As discussed above and in some of the Many-MI-Many scenario if all participants similar to SEPA, but now plans a hybrid case studies, ‘like-for-like’ refers to an need to interoperate, and the FMI wants to approach, in which the initial migration is implementation approach that implements move directly to an ISO 20022 implementation phased but new features are introduced a subset of ISO 20022 that is limited to that functionally exceeds the legacy standard big bang. In the first phase of the project, the same functionality as the standard it it replaces. It can also be imposed by a participants join in waves, where within the replaces. This approach enables users or a regulation. Because it requires the FMI and wave it is mandatory to send and receive central infrastructure to translate without loss all participants to be ready on the same day, ISO 20022. During this period functionality is between ISO 20022 and legacy, and this can this approach introduces more operational restricted to like-for-like. Once all users are be very helpful to ease the transition from risk than a phased implementation. However, migrated, phase 2 begins (big bang) where one standard to another. Creating like-for-like it does have the advantage that elaborate all banks are expected to be able to receive specifications can also be useful to check that and costly co-existence measures like central enhanced ISO 20022 messaging, and may important use cases are not forgotten and that translation and storage of overflow data are also opt to send. the full functionality of the legacy system is not required. The Eurosystem’s Target high- supported by ISO 20022. value payments system is expected to follow a big bang migration. Standards maintenance However, like-for-like does have some serious pitfalls. One potential problem is that making a The inherent risks of big bang can be It is important to maintain the consistency and community business case for ISO 20022 can mitigated by introducing a strong readiness stability of a new service during an extended be difficult, if not impossible, if only like-for-like testing regime and certification programme, phased implementation. Many FMIs therefore is discussed, because participants cannot mandatory training, and by practicing opt to ‘freeze’ the version of ISO 20022 foresee the business value ISO 20022 will implementation through dry-runs and messages they deploy until all participants are bring. A second is that if a large part of the exercises. Nevertheless, operators should plan on board. However, communities should be community is relying on like-for-like translation for high levels of exceptions and investigations forewarned that a ‘catch-up’ release will be post-migration, introducing new ISO 20022 in the early days of operation, and ideally have required once all participants are live, and this features can be a challenge. Effectively it in place contingency plans to fall-back to the may represent a significant upgrade, skipping requires a second migration, from like-for-like legacy system in case of a major failure. several previous message versions. to ‘native’ ISO 20022. This is not to dismiss the like-for-like approach. There may be In general, SWIFT recommends FMIs circumstances in which it is valid, for example implement regular standards upgrades once if the principal objective of the ISO 20022 fully live (see process), ideally aligned with project is to achieve a technology migration, the SWIFT MT standards release process. or to make it easier for new entrants to enter There are clear community benefits to this a market by providing an open standard approach, particularly for global banks that interface. But if the aim is to introduce would otherwise have to manage multiple significant new functionality using ISO 20022, versions of the same standard with multiple like-for-like should be handled with care. unsynchronized upgrade cycles.

8 ISO 20022 ISO 20022 harmonization Implementation Strategies

SWIFT Standards has written extensively in the past about the dangers of fragmentation of the ISO 20022 standard, and the need to combat this tendency by insisting on information sharing, creation and adoption of global market practice and regular upgrade cycles for FMIs (see ISO 20022 Harmonization Charter). SWIFT continues to pursue its FMI harmonization initiative, which is focussed principally on cross-border harmonization. However, implementers should also consider harmonization in domestic markets, particularly if, as has been seen in countries like Switzerland and the UK, there is coordinated convergence of legacy domestic platforms onto ISO 20022 as a common standard.

9 Conclusions and ISO 20022 Implementation Strategies recommendations

There are many ways for an FMI to implement ISO 20022, and the best way will always depend on multiple factors: the size and maturity of the community, the nature of the service, the regulatory environment, and the business objective of the implementation. This paper is an attempt to bring some structure to these factors and to provide some commentary on the pros and cons of different approaches. The key recommendation that emerges every time is the need to communicate, starting with a clear vision of the initiative, its business drivers and advantages, and continuing through all stages of the project to keep stakeholders informed and on-side.

SWIFT Standards has played a key supporting role in many of the initiatives described in this paper, and more generally in the development and deployment of ISO 20022. If you would like to comment on this paper or talk to SWIFT about ISO 20022 implementation, please contact [email protected].

10 ISO 20022 Appendix A Implementation Strategies Case studies

Case study 1 - SIX Interbank Clearing 12 Case study 2 - Fedwire® Funds Service 14 Case study 3 - Euroclear 18 Case study 4 - Australian Securities Exchange 20 Case study 5 - The Clearing House 22 Case study 6 - SEPA 24 Case study 7 - CLS 26

11 ISO 20022 Appendix A Implementation Strategies Case study 1

SIX Interbank Clearing

Project scope Criteria for implementation Chosen implementation approach approach

Applicable business domain(s) (high- Like-for-like (as an initial intermediary value payments, low-value payments, Which of the following adoption drivers step? – for how long? ) or enhanced ISO real-time payments, securities, foreign are relevant for your adoption? 20022 message capabilities deployed: exchange, other): The Swiss RTGS platform Enhanced ISO 20022 for all messages. processes all kinds of real-time payments in -- Regulatory context: Fulfilment of FATF, Swiss francs (SIC) and euro (euroSIC) (high- etc. Big bang (all participants at the same value and low-value payments; interbank-, -- Local (domestic) and global time) or phased with gradual transition customer-to-bank- and third-party-system- alignment/dependencies: (coexistence): The Swiss community payments). Harmonization of all Swiss payments as decided to migrate on a gradual transition a strategic decision of the Swiss financial approach with dedicated migration windows Is this green-field (new FMI in a new center; supporting SEPA; prepared for for the participants with a given end date (see business area) or migration? Were there supporting standardized high-value above). any particular circumstances for the payments. project?: The Swiss RTGS platform was -- Desired end-state and main strategic Format translation used (central, at end- replaced and functionally enlarged in 2016 as goals to be achieved (system renewal, points, none): Central translation of three the former one reached the end of life cycle. international standards, regional/ standards until the given end date. All payments are now being processed using local/global initiatives, interoperability, the ISO 20022 standard. The migration of the richer data, new services, other): All Single or multi-network solution: SWIFT participating banks and third party systems criteria have been relevant and are fulfilled network and proprietary access solution. will be finished by November 2017 (from with the new RTGS platform: systems proprietary Swiss payments standards) and renewal, international standards, regional/ Tools and guidelines applied by November 2018 from SWIFT FIN (less than local/global initiatives, interoperability, -- Harmonisation Charter, (global) 1% of Swiss franc transactions), respectively. richer data, new services. market practice: Development of Swiss -- Operational impact (back-office market practices by bank working groups Number of participants (direct and readiness, implementation cost, managed and published by SIX Interbank indirect): Numbers of direct participants: SIC implementation timeline, business Clearing as Implementation Guidelines, = 338 euroSIC = 182. impact, operational risk, solution XML-Schemas and examples . readiness, other): After end-to- -- Converter or other tools Expected volumes (messages or end implementation of ISO 20022 in (MyStandards or similar tool): Portal to transactions): Numbers of transactions per Switzerland we expect lower production validate ISO 20022 messages. 2016: SIC = 450 million; euroSIC = 8 million. costs for all participants and improvement -- Testing infrastructure and processes: of time-to-market for new services. Testing infrastructure and test cases Complexity (number of message types, for participating banks and software number of flows, number of different providers. participant types): 20 message types including customer payments, bank payments and third party systems payments and special payments messages for the system manager (Swiss National Bank).

Expected migration date: euroSIC already life since April 2015, SIC already life since April 2016.

12 ISO 20022 Implementation Strategies

Community involvement and Lessons learned ‘change management’

What worked well, what did not?: Very Please describe any actions you have well: Strong project focus when it came to carried out relative to your adoption replace the existing RTGS platform; successful project. Do you have plans in place for involvement of the swiss banks. ongoing activities? Things you would do differently: N/A -- Communications with community: Working groups, events/workshops for Recommendations to others who still banks and software providers, central have to implement: Start to communicate contact point for individual support, as early as possible; involve all affected brochures, media conferences and public stakeholders; a strong commitment by the websites (e.g. www.paymentstandards. decision makers (Board of directors of SIX ch/en/home.html). Interbank Clearing) is substantial. -- Community consultation process: Working groups (see above). -- Community ‘buy-in’, alignment and support: Communication with all affected stakeholders (see above). -- Community ‘change management’ process: N/A

13 ISO 20022 Appendix A Implementation Strategies Case study 2

Fedwire® Funds Service

Number of participants (direct and Expected migration date: To prepare for Project scope indirect): The Fedwire Funds Service has and simplify the ISO 20022 implementation, about 5,300 direct participants that send the Federal Reserve Banks will implement Fedwire funds transfers for their own purposes changes to the legacy format for the Fedwire Applicable business domain(s) (high- or on behalf of their customers (i.e., indirect Funds Service in November 2020; the value payments, low-value payments, participants). The Federal Reserve Banks do November 2020 legacy format software real-time payments, securities, foreign not maintain information about the number of release will also include changes to the exchange, other): The Federal Reserve indirect participants. align with the format changes to the SWIFT Banks will implement ISO 20022 messages ordering customer and beneficiary fields in for the Fedwire® Funds Service, which is Expected volumes (messages or SWIFT’s MT format, which will be effective in the central bank’s high-value real-time gross transactions): On an average business day November 2020. The Federal Reserve Banks settlement system in the United States. The in 2016, the Fedwire Funds Service processed will announce the dates for the ISO 20022 implementation will cover both domestic and about 590,209 funds transfers valued at $3 implementation phases for the Fedwire Funds cross-border funds transfers, as well as all trillion. These figures do not include nonvalue Service after detailed planning has been inputs and outputs from the Fedwire Funds messages. completed. Service (i.e., all message types, inquiries, reports, etc.). The Fedwire Funds Service’s Complexity (number of messages types, ISO 20022 implementation is also expected number of flows, number of different to include enhancements based on customer participant types): The Federal Reserve feedback, including new fields for additional Banks plan to implement the following 13 persons identified in payment messages, ISO 20022 messages for the Fedwire Funds purpose codes to help explain the business Service: purpose of funds transfers, and structured address components, including a country -- head.001 code. -- pacs.002 -- pacs.004 Is this green-field (new FMI in a new -- pacs.008 business area) or migration? Were there -- pacs.009 any particular circumstances for the -- pain.001 project? This is a migration. The Federal -- camt.035 Reserve Banks are adopting the ISO 20022 -- camt.052 messages for the Fedwire Funds Service as a -- camt.056 strategic imperative. We believe modernizing -- camt.060 the message formats for the Fedwire Funds -- admi.002 Service represents an investment for the -- admi.004 future. Adopting the ISO 20022 message -- admi.006 formats should help the Federal Reserve Banks meet increasing demands by For some of these messages, the Federal participants for richer data, help participants Reserve Banks will need to create multiple more easily comply with evolving regulatory usage guidelines for specific business requirements, help improve the service’s purposes, resulting in 24 usage guidelines interoperability with other payment systems in total. For example, for the camt.052 given the interconnected, global economy, message, there will be six different usage and help participants provide enhanced guidelines representing various Fedwire Funds services to their clients. Service reports.

14 ISO 20022 Implementation Strategies

-- This phase will not be completed until all Criteria for implementation Chosen implementation approach Fedwire Funds Service participants can approach send and receive messages in the ISO 20022 format. The Federal Reserve Banks have finalized the -- The Federal Reserve Banks will sunset The Federal Reserve Banks determined the following phased implementation approach legacy message format at end of this ISO 20022 implementation approach for the and are currently evaluating the timeline for phase. Fedwire Funds Service based on the following implementation; the timeline is expected to be factors: announced once detailed planning has been Phase 3 (ISO enhancements) completed. The Federal Reserve Banks will enable all -- The end-state of the ISO 20022 Fedwire Funds Service participants to send implementation should include optional Phase 1 (Legacy format ISO preparation) ISO 20022 messages that include optional enhancements. In November 2020, the Federal Reserve enhancements on a specific date to be -- The implementation approach should limit Banks will make changes to the legacy format determined. In other words, this will be a “big operational risk to the Federal Reserve for the Fedwire Funds Service to prepare for bang.” Banks and Fedwire Funds Service and simplify the ISO 20022 implementation participants. by “cleaning up” the legacy format (e.g., by Benefits -- While a “big bang” approach for the entire removing obsolete fields). This legacy format -- Making changes to the legacy Fedwire industry is too risky given the number of software release will also include changes Fund Service message format to remove direct Fedwire Funds Service participants to the Fedwire Funds Service’s originator obsolete fields in advance of the ISO (over 5,300), the implementation and beneficiary fields to align with changes 20022 implementation will simplify the approach should allow individual Fedwire that SWIFT is making in November 2020 to migration to the ISO 20022 message participants to cut over to sending and comparable fields in the SWIFT MT format. format. receiving ISO 20022 messages at the -- The ISO like-for-like phase permits same time. Phase 2 (ISO “like for like”) Fedwire Funds Service participants to -- The implementation timeline should The Federal Reserve Banks will migrate send and receive messages in the ISO provide sufficient lead time for participants Fedwire Funds Service participants in waves 20022 format at the same time, which and their software vendors to make to send ISO 20022 like for like messages (i.e., might provide a greater incentive for them necessary changes and to test those the ISO 20022 version of the legacy format) to integrate ISO 20022 message formats changes in the Federal Reserve Banks’ and receive ISO 20022 messages that contain in their backend systems and databases. test environment. fields to support enhancements that will be -- During the ISO like-for-like phase, Fedwire -- The implementation approach should enabled in Phase 3. Funds Service participants will not need include a mandated sunset date for the to know which format other participants -- During the migration period, the Fedwire legacy format. are capable of receiving because the Funds Service will translate the legacy Fedwire Funds Service will convert ISO format into the ISO 20022 format and vice 20022 messages to the legacy format and versa when necessary to accommodate vice versa depending on which format the Fedwire senders and receivers that are not receiver is capable of receiving. using the same format. -- Migrating in waves reduces risks -- Although Fedwire Funds Service associated with a big bang conversion participants will need to be capable of because it allows a participant to fall back receiving ISO 20022 messages that to legacy format if it encounters problems contain fields to support enhanced data, during or after its conversion to the ISO they will not be permitted to start sending 20022 format in Phase 2 without affecting enhanced data until Phase 3. other participants.

15 ISO 20022 Appendix A Implementation Strategies Case study 2

-- A phased approach allows participants -- The Federal Reserve Banks will impose that don’t plan to send ISO 20022 a stability period (approximately 2 to Community involvement and messages with optional enhancements 3 months) after all participants have ‘change management’ to complete their migration to ISO 20022 successfully completed Phase 2 of the during the ISO like-for-like phase. migration to ensure participants can send and receive ISO 20022 like-for-like The Federal Reserve Banks have been Cons & Risks messages without issues before enabling working with The Clearing House Payments -- The Federal Reserve Banks and internal the enhancements in Phase 3. Company L.L.C., which operates the CHIPS® interfaces have to support both the legacy -- In advance of the ISO like-for-like phase, wire-transfer system, to collaborate on ISO and ISO 20022 formats until the ISO the Federal Reserve Banks plan to make 20022 implementation plans for the major enhancement phase is complete. changes to the legacy Fedwire Funds U.S. high-value funds-transfer systems. They -- Participants cannot send ISO 20022 Service message format to eliminate jointly chair a Format Advisory Group to assist messages with enhancements until Phase obsolete fields, which will simplify the in the detailed planning activities. The Format 3. coexistence of, and conversion between, Advisory Group is made up of global and -- Participants that cut over to send ISO legacy and ISO 20022 formats during regional banks, all of which are participants in 20022 like-for-like messages in Phase 2 Phase 2. one or both systems. Most participate in both may never make the changes necessary -- The Federal Reserve Banks will include the Fedwire Funds Service and the CHIPS to send the optional enhancements in a workstream in their ISO 20022 project wire-transfer system. Phase 3. plan to address interoperability issues -- Participants that want to start sending that may occur in Phase 3 when Fedwire The Federal Reserve Banks have also created ISO 20022 messages with enhancements Funds Service participants begin receiving a webpage to provide information about the in Phase 3 will need to make additional ISO 20022 messages with enhancements ISO 20022 implementation for the Fedwire changes to support sending those that need to be converted to another Funds Service. The webpage includes enhancements. format (e.g., SWIFT MT) to deliver to information about ISO 20022 strategies for -- Fedwire Funds Service participants downstream institutions that are not ACH payments as well. that receive ISO 20022 messages with capable of receiving ISO 20022 messages enhancements once Phase 3 goes live that include enhanced data. See: The Fed’s Resource Center for Adoption may encounter interoperability issues of ISO 20022 for Wire Transfers and ACH for messages that they need to convert Payments. to another format (e.g., SWIFT MT message format) to deliver to downstream Key materials include the following: institutions that are not capable of receiving the ISO 20022 format with -- ISO 20022 Business Case Assessment enhancements. Summary -- Sibos® conference presentations in 2015 Mitigation Strategies and 2016 -- The Federal Reserve Banks plan to -- ISO 20022 use cases for U.S. wire conduct significant internal testing even transfer systems before participants and their software vendors begin testing in the Federal Finally, the Federal Reserve Banks will host a Reserve Banks’ test environment. number of educational outreach events (i.e., -- The Federal Reserve Banks plan to in-person sessions and webinars) to provide provide sufficient time (i.e., at least Fedwire Funds Service participants and one year) before Phase 2 begins for software vendors an in-depth walk-through of participants and their software vendors the ISO 20022 format specifications. to test in the Federal Reserve Banks’ test environment.

16 ISO 20022 Implementation Strategies

-- Establish an advisory group - The 10. Develop a plan and administrative Lessons learned Federal Reserve Banks and The process for sharing the ISO 20022 format Clearing House established a format documents with participants and software advisory group to work closely on the vendors (i.e., public or closed user group). Below is a list of lessons learned related to detailed work (e.g., review ISO 20022 -- The Federal Reserve Banks will use the ISO 20022 implementation for the Fedwire messages, validate enhancement SWIFT’s MyStandards website to Funds Service to date: items). make their ISO 20022-related format -- Consider collaborating with peer documents available to a closed user 1. Be prepared for the unexpected (e.g., operators (e.g., The Clearing House group (i.e., participants and vendors) legal issues reconciling the ISO 20022 for the U.S. wholesale funds-transfer message format with U.S. funds transfer market) so your participants can 11. True global interoperability will never be law). benefit from efficiencies and to help achieved until ISO 20022 messages are ensure major payment systems can adopted in the correspondent banking 2. Plan for sufficient dedicated resources interoperate effectively. space. to support implementation planning and -- Even when market infrastructures execution. 5. Leverage the work already completed adopt ISO 20022 messages for The Federal Reserve Banks retained and currently underway by the High-Value domestic payments, correspondent SWIFT as a consultant to supplement their Payment Systems Plus (HVPS+) Group to banks will need to convert cross- own resources to complete the detailed encourage a harmonized implementation border payments to the SWIFT MT implementation work. of ISO 20022 messages by market format thereby limiting the full potential infrastructures globally. of ISO 20022 formats (e.g., additional persons identified in the message, 3. Engage legal representatives early on 6. Be open to revising the implementation purpose codes). and throughout the planning of the approach and timeline as they are implementation strategy and with detailed socialized with the industry, governance work. bodies, and internal technical teams.

4. Educate and engage the industry (i.e., 7. Don’t announce implementation timeline participants and software vendors) and milestones until after detailed work early, frequently, and broadly to ensure has been completed. awareness and readiness: Even if you announce a “preliminary” -- Don’t overestimate the user timeline, it may become the de facto date, community’s knowledge and which could create expectations for your understanding of the ISO 20022 participants and the broader industry. format. -- Work closely with software vendors to 8. Market infrastructures that use a help facilitate adoption of ISO 20022 proprietary format will require more by the user community and engage detailed work than those that use a vendors to help validate the detailed SWIFT-based format. work. -- Clearly identify the scope (i.e., like-for- 9. The ISO 20022 project can provide an like versus enhancements, payment opportunity to streamline processes by messages versus reports or both). identifying: -- Develop a customer communication -- Obsolete or unused features, which strategy (e.g., letters, newsletters, could be eliminated. webinars, in-person educational -- New messages, rules, or guidelines sessions). that could promote best practices.

17 ISO 20022 Appendix A Implementation Strategies Case study 3

Euroclear

Project scope Criteria for implementation Chosen implementation approach approach

18 ISO 20022 Implementation Strategies

Community involvement and Lessons learned ‘change management’

What worked well, what did not?: Please describe any actions you have carried out relative to your adoption Worked well: project. Do you have plans in place for -- There was a series of SMPG Market ongoing activities? Practices already available. -- Available SWIFT trainings. -- Communications with the community: -- Effort to ensure interoperability between We have supported market players in their ISO 15022 and ISO 20022. migration to ISO 20022. -- Community consultation process: N/A Did not work well: -- Community ‘buy-in’, alignment and -- Difficult business case when you are support: N/A already using existing MTs due to the -- Community ‘change management’ heavy initial investment costs. process: We have supported market -- Costs of coexistence for institutions who players in translating the existing business have to support all the different standards. process to the new ISO standard. -- Impact of the standard releases: Unlike ISO 15022, there is always an impact (technical) even when it is a standard release with only optional business changes as a new XML schema with the new version must be implemented.

Things you would do differently: -- Need for a clear migration strategy, unlike funds ISO 20022 migration, for which the deadline has been postponed several times, resulting in a loss of credibility. -- Set-up an active advisory group from day 1.

Recommendations to others who still have to implement: Today there are powerful tools to help the migration such as: -- SWIFT MyStandards Readiness Portal, which was not available when we migrated and which we use today with Clients who have not yet migrated. -- MyStandards: to be able to publish message specifications and compare them with others, such as Clients, SMPG, etc.

19 ISO 20022 Appendix A Implementation Strategies Case study 4

Australian Securities Exchange

CHESS has an existing proprietary message Project scope set of over 500 unique messages. A high Criteria for implementation level gap analysis vs. ISO 20022 standard approach messages indicate that the unique message The replacement of ASX’s equity post trade set may be reduced to about 120 ISO 20022 clearing and settlement system (CHESS), messages, with one or more usage guidelines/ Key drivers for the adoption including holding sub-register. business scenarios associated with each of these messages. ASX is considering -- System renewal. Applicable business domains include: account opportunities for adopting more standardised -- Adoption of global standards. management, administration, authority, cash processes, consolidation and rationalisation of -- Allow for future interoperability. management collateral management payment the message set. -- Facilitate greater innovation, flexibility clearing and settlement, reference data, in delivery and time to market for new securities clearing securities event, securities The target implementation date for the project services. management securities settlement, securities is expected to be announced by ASX end of -- Achieve operational efficiencies and trade. 2017, together with an announcement on the reduce costs for ASX and its customers. expected technical solution for the system CHESS is a twenty+ (20) year old system that replacement. ASX is currently assessing the performs efficiently with rich functionality, but suitability of Distributed Ledger Technology is based on proprietary message formats with (DLT) for this system replacement. The bulk of significant change overhead. ASX is seeking ASX’s review and definition of equivalent ISO a more contemporary and flexible system to 20022 messages is expected to be complete meet the needs of its own and customer’s by mid-2018. requirements, with the associated adoption of ISO 20022 standards.

Over 130 clearing and settlement participants connect to CHESS directly, as well as payment banks, and share registries on behalf of over 2200 issuers. A number of software vendors currently support customer’s back office systems and connectivity to CHESS.

20 ISO 20022 Implementation Strategies

Chosen implementation approach Community involvement and ‘change management’

-- The business scope of the implementation for Day 1 is currently in definition, in ASX is conducting an extensive engagement consultation with ASX’s customers. It is plan with its customers and other stakeholders likely to be a minimum of like for like with including regulators. This includes: enhanced or changed functionality. -- The implementation approach is yet to be -- Consultation on business requirements – determined, and will be considered closer formal consultation papers, working group to the transition date in consultation with and bilateral meetings; customers. Preliminary consultation with -- Establishment of an ISO 20022 Technical customers has indicated mixed views on Committee with key stakeholders to big bang vs. progressive transition. allow ASX to recommend to and seek -- Network and connectivity options are yet agreement with key principles for the to be determined. adoption of ISO 20022 and review of draft -- ASX is utilising the following resources to final usage guidelines. The Committee and guidelines as part of its ISO 20022 is also considering the education and adoption process: training requirements of the community. -- SWIFT Standards consultants to -- Dedicated demonstration venue to assist with best practice, message showcase the potential DLT solution, and mapping, new message and change opportunities for the future, including the request management. adoption of ISO 20022. -- Harmonisation Charter -- Information sessions for stakeholders via -- SWIFT MyStandards to develop industry forums, conferences, webinars. and publish usage guidelines for its community, and ongoing Over time this engagement will transition to maintenance. include project delivery, industry wide testing, and implementation management.

21 ISO 20022 Appendix A Implementation Strategies Case study 5

The Clearing House (CHIPS)

potentially significant impact to TCH and Project scope Criteria for implementation the U.S. HVP Clearing and Settlement approach system warranting both Regulatory and Ownership approval of this effort. Applicable business domain(s) (high- ISO20022 is expected to be a multi- value payments, low-value payments, Which of the following adoption drivers year initiative involving company-wide real-time payments, securities, foreign are relevant for your adoption? resources and considerable financial exchange, other): CHIPS is the largest allocation. privately-owned, high value US Dollar -- Regulatory context: Bank Secrecy clearing and settlement system in the world. Act/FinCEN, ‘Travel Rule’ requirement for Processes, on average 43% of USD wire transmitting transaction related information payments daily. for funds transfers and transmittal of funds involving FI’s is one of the criteria for Is this green-field (new FMI in a new ISO20022 adoption. business area) or migration? Were there -- Local (domestic) and global any particular circumstances for the alignment/dependencies: CHIPS project?: The Clearing House decision to processes approximately 43 % of USD migrate CHIPS (TCH’s High Value Payments HVP payments and 95% of U.S. cross System) legacy proprietary messaging to border payments and shares the USD ISO20022 was determined in consensus with market with FedFunds Services, Fedwire. the broader U.S. community and coordinated Alignment is essential for our shared within the ISO 20022 U.S. Stakeholder Group. participant constituency. Restrictions due to interoperability related to the cross- Number of participants (direct and border transmittal of rich ISO20022 data indirect): 48 Direct Participant Banks. is also a primary consideration to our implementation approach. Expected volumes (messages or -- Desired end-state and main strategic transactions): CHIPS processes goals to be achieved (system renewal, approximately 900k payment and payment international standards, regional/ related messages on an average day. local/global initiatives, interoperability, richer data, new services, other): Complexity (number of message types, Desired end-state is the enhanced version number of flows, number of different of ISO20022. One of the main business participant types): Payments send 449.5k, case drivers by our owner banks is the Payments receive 449.5k, 1k proprietary expectation of a renewed messaging payment related. format with richer data capacity and mining capabilities and interoperable with Expected migration date: (TBD) TCH their global ISO20022 implementations in has completed message mapping and is in other global markets. the early stages developing user guidelines -- Operational impact (back-office and specifications. Further analysis and readiness, implementation cost, development are required. Once we implementation timeline, business complete these phases of this program, we impact, operational risk, solution will be in a better position to provide a target readiness, other): TCH (CHIPS) has implementation date. been designated as a SIFMU under Title VIII of the U.S. Dodd-Frank Act. As such a program of this size presents a

22 ISO 20022 Implementation Strategies

Chosen implementation approach Community involvement and ‘change management’

Like-for-like (as an initial intermediary step? – for how long? ) or enhanced ISO Please describe any actions you have 20022 message capabilities deployed: carried out relative to your adoption TCH is employing a combination approach project. Do you have plans in place for including both Like-for-Like and Enhanced ongoing activities? ISO20022 messaging. TCH will consider migrating to the full Enhanced messaging -- Communications with community: when the industry solves the current TCH proprietary communications and interoperability issues associated. While this marketing mechanisms. approach is driven by the need of the industry -- Community consultation process: to resolve the “interoperability” issue, TCH SWIFT Consulting Services. (CHIPS) is envisioning the enhanced solution. -- Community ‘buy-in’, alignment and with cross-border payments. support: ISO20022 US Stakeholders Group, CHIPS and Fedwire Format Big bang (all participants at the same Advisory Group, CHIPS Business time) or phased with gradual transition Committee. (coexistence): Big Bang. Due to the -- Community ‘change management’ comparatively small number of CHIPS process: N/A Participants ( 48 direct participants) a Big Bang approach to implementation will be employed. This will be coordinated with Fedwire.

Format translation used (central, at end- points, none): TCH does not have a plan to provide a translation utility.

Single or multi-network solution: N/A

Tools and guidelines applied -- Harmonisation Charter, (global) market practice: Throughout the CHIPS message mapping sessions the ISO20022 working team has relied on the best practices defined by the HVPS+ Task Force. TCH is supportive of the objectives of the Harmonization Charter. -- Converter or other tools (MyStandards or similar tool): It is TCH’s plan to employ the use of MyStandards in the development, testing and communication of ISO20022 message schemas and message usage guidelines. -- Testing infrastructure and processes: N/A

23 ISO 20022 Appendix A Implementation Strategies Case study 6

SEPA

Project scope since November 2009 for its SDD schemes. In standard for the development of electronic November 2016 the EPC also published the financial messages as defined by the ISO, SCT Inst Scheme (effective as from November encompassing the physical representation Applicable business domain(s) (high- 2017). of the payment transactions in XML syntax, value payments, low-value payments, in accordance with business rules and real-time payments, securities, foreign implementation guidelines of [European] exchange, other): Retail payments in euro. Criteria for implementation Union-wide schemes for payment transactions As from November 2017 also real-time approach falling within the scope of this Regulation.” The payments in euro. SEPA Regulation only mandates the use of ISO 20022 for corporate PSUs when sending “bundled” instructions (i.e. Article 5 (1)(d) of Is this green-field (new FMI in a new The EPC’s role is to support and promote the SEPA Regulation states that payment business area) or migration? Were there the integration and development of European service providers must ensure that where a any particular circumstances for the payments. project?: N/A payment service user “that is not a consumer or a micro-enterprise, initiates or receives It was a decision of the EPC (back in 2006) individual credit transfers or individual direct Number of participants (direct and to make the use of the ISO 20022 mandatory debits which are not transmitted individually, indirect): Approximately 4.400 payment in the interbank space and recommended but are bundled together for transmission, the service providers (PSPs). Number of in the C2B space for SCT and SDD scheme message formats specified in point (1)(b) of enterprises in the EU non-financial business participants. The rationale for selecting ISO the Annex are used”). economy: 24,4 million (Eurostat 2014). 20022 was that it allowed the EPC to leverage global standards that at the time were As from November 2017, following a Expected volumes (messages or increasingly being taken up by PSPs and their recommendation of the Euro Retail Payments transactions): The primary task of the EPC is business customers. to manage four payment schemes (i.e. SEPA Board (ERPB), the EPC C2B IGs will become ‘mandatory’, which should be interpreted Credit Transfer (SCT) scheme; SEPA Instant In February 2012, the EU co-legislators, i.e. as follows: the Originator/Creditor Bank Credit Transfer (SCT Inst) scheme (effective the European Parliament and the Council of is obliged to accept C2B credit transfer/ as from November 2017); SEPA Direct Debit the EU representing EU governments adopted direct debit instruction messages at the (SDD) Core scheme; SDD Business-to- the ‘Regulation (EU) No 260/2012 establishing request of the Originator/Creditor which are Business scheme), that facilitate some 37 technical and business requirements for based on the ISO 20022 XML message billion transactions in 34 countries each year credit transfers and direct debits in euro and standards described in the SCT/SDD C2B (note: the geographical scope of the SEPA amending Regulation (EC) No 924/2009’ Implementation Guidelines (i.e. this means schemes currently covers 34 countries and (the SEPA Regulation), which defined 1 that a scheme participant is obliged to accept territories: the 28 EU Member States plus February 2014 as the deadline in the euro at least but not exclusively the messages Iceland, Norway, Liechtenstein, Switzerland, area for compliance with the core provisions described in the SCT and SDD C2B Monaco and San Marino). of this Regulation. In non-euro countries, the Implementation Guidelines). deadline was set to 31 October 2016. As

Complexity (number of message types, of these dates, existing national euro credit number of flows, number of different transfer and direct debit schemes had to participant types): Message types used be replaced by SCT and SDD. The SEPA include: pain.001; pain.002; pain.007; Regulation details, among other things, the pain.008; pain.009; pain.010; pain.011; use of the ISO 20022 message standards pacs.002; pacs.003; pacs.004; pacs.007; by Payment Service Providers (PSPs) and pacs.008; pacs.028; camt.029; camt.056. payment service users (PSUs). Article 2 (17) of the SEPA Regulation defines the meaning Expected migration date: EPC is using ISO of the ISO 20022 XML message standard as 20022 since January 2008 for its SCT and follows: “ISO 20022 XML standard means a

24 ISO 20022 Implementation Strategies

Chosen implementation approach Community involvement and Lessons learned ‘change management’

Like-for-like (as an initial intermediary -- Early communication with and step? – for how long? ) or enhanced ISO The EPC SEPA payment schemes are involvement of all stakeholders is key as 20022 message capabilities deployed: N/A updated every two years to reflect market well as effective planning (e.g. via the needs and evolutions in the technical development of a step-by-step migration Big bang (all participants at the same standards developed by international work plan). time) or phased with gradual transition standards bodies (e.g. ISO). This evolution -- It helps when migration is mandated by (coexistence): Please see previous section. is guided through a transparent change- the regulator. management process, open to all Format translation used (central, at end- stakeholders. points, none): N/A To further enhance the involvement of scheme end-users and technical players, the EPC Single or multi-network solution: N/A created two forums: -- The Scheme End-User Forum (SEUF) Tools and guidelines applied which is formed by representatives of -- Harmonisation Charter, (global) European associations of end-users of market practice: Yes. the schemes, such as consumers, (e-) -- Converter or other tools merchants and corporate treasurers. (MyStandards or similar tool): GEFEG -- The Scheme Technical Forum (ESTF) is the tool that is used to create the SEPA which is made up of the representatives EPC Implementation Guidelines. of technical players who provide services -- Testing infrastructure and processes: facilitating the processing of transactions N/A under the Schemes.

For further information: https://www. europeanpaymentscouncil.eu/what-we- do/sepa-payment-scheme-management/ evolution-schemes.

25 ISO 20022 Appendix A Implementation Strategies Case study 7

CLS

Number of participants (direct and Project scope indirect): 60+ (direct) Members. 20,000+ Criteria for implementation indirect participants. Note only Member approach institutions interface directly to CLS using ISO Applicable business domain(s) (high- 20022 messages. value payments, low-value payments, Which of the following adoption drivers real-time payments, securities, foreign Expected volumes (messages or are relevant for your adoption? exchange, other): Foreign Exchange, Cash transactions): High hundreds of thousands Management and Administration messages as to low millions. -- Local (domestic) and global a service provider to the market. High Value alignment/dependencies: We are Payments as a consumer i.e. a participant of Complexity (number of message types, defining and aligning with the global multiple RTGS systems. number of flows, number of different strategy for ISO 20022. participant types): There are 17 ISO 20022 -- Desired end-state and main strategic Is this green-field (new FMI in a new message types supported some of which goals to be achieved (system renewal, business area) or migration? Were there have multiple versions. A variety of business international standards, regional/ any particular circumstances for the flows are supported including Instruction local/global initiatives, interoperability, project?: Our initial implementation of ISO input, real time Instruction status notifications richer data, new services, other): 20022 was a migration. Previously, the and cash management/reconciliation flows. Cross compatibility, reuse, standard / best majority of our inbound and outbound flows High value payment flows are also supported practice setting, richer data. used a proprietary message format. These for our connections to the various ISO 20022 -- Operational impact (back-office messages were retired and were replaced enabled RTGS systems. readiness, implementation cost, by standard ISO 20022 messages. All new implementation timeline, business services that are currently in the pipeline will Expected migration date: Migration for FX impact, operational risk, solution also support standard ISO 20022 messages. settlement service was completed in 2016. readiness, other): Our primary driver for adopting a global messaging standard was to reduce complexity and cost to our customers. Our migration has provided the opportunity for customers to simplify their interfaces to CLS and to standardise across multiple services.

26 ISO 20022 Implementation Strategies

Chosen implementation approach Community involvement and Lessons learned ‘change management’

Like-for-like (as an initial intermediary Items for consideration step? – for how long? ) or enhanced ISO Existing governance framework and technical 20022 message capabilities deployed: user groups were used gain a consensus -- Early Market Engagement – Member and Like for like with the FX Settlement service but that a migration from a legacy proprietary vendor education was a critical part of future implementations will take advantage of messaging set to global standard was in the the process. We initially reached out to new capabilities best interest of our Members and the wider Vendors and Members in 2012, almost industry. 4 years prior to the completion of the Big bang (all participants at the same migration. time) or phased with gradual transition -- Providing support and managing the (coexistence): Our approach was designed migration and coordinating the cutovers to provide maximum flexibility to our was a significant undertaking: 60+ ISO customers. As such we adopted a phased 20022 migrations in only just over 40 approach and supported both the old and weekends. It was essential therefore to new messages (both inbound and outbound) establish a dedicated programme team. in parallel for the duration of the migration -- Concurrent running of both the legacy period. This introduced additional levels of proprietary channel and ISO 20022 complexity to our implementation, but as a channel to support our migration strategy critical market infrastructure, we determined introduced additional levels of complexity, that a big bang cutover was not appropriate and in some cases, influenced our design. for our service. But as stated above, a big bang cutover was determined not to be a suitable Format translation used (central, at option for our service. end-points, none): Our system supported both old and new messages types and communicated to our customers in the appropriate format (or indeed in both formats) based on how they had been centrally configured by CLS.

Single or multi-network solution: Single for customer connectivity (SWIFT). Multi-network if you include our RTGS connectivity.

Tools and guidelines applied -- Harmonisation Charter, (global) market practice: Yes. -- Converter or other tools (MyStandards or similar tool): MyStandards / XML / SWIFT MX Model Developer tool. -- Testing infrastructure and processes: Joint acceptance test environment. Internally developed bespoke tools.

27 ISO 20022 Appendix B Implementation Strategies Introduction to ISO 20022

About ISO 20022

There are two key aspects to ISO Methodology are possible, which allows ISO 20022 20022. It is a methodology, a ‘recipe’ The ISO 20022 methodology is in part logical definitions to be decoupled from described by a formal meta-model – a precise implementation technology. to be followed to create financial definition of what kind of information can be messaging standards; and it is a body captured. The methodology distinguishes 3 Content of content, the message definitions layers: The ISO 20022 methodology allows key themselves and other content required concepts and message definitions to be by the methodology to explain the formalized, which ensures that the technical format of the specifications is well-defined underlying concepts and processes Business / Conceptual and consistent. This is a great advantage for in the business domain in which the Defines financial concept, e.g., ‘Credit anyone implementing specifications, because messages will be used. Transfer’ it ensures easier analysis and enables automated consumption of specifications. Logical Defines e.g. credit transfer messages, to Specifications in the form dictated by the serve the business process standard, can themselves be standardised; formally published as part of the standard. Physical For any process that will be implemented Defines physical syntax, e.g. XML more than once, this is a great advantage, because it brings global consistency to the way business processes are automated, reducing overall costs and allowing best- The business/conceptual layer contains practice distilled from one implementation to formally defined financial concepts and the be re-used in others. relationships between them (e.g. a cash account is a kind of account; accounts have ISO 20022 published content consists of servicers and owners; or a bond is a kind of business/conceptual definitions and logical security; a bond has an issuer and holders). message definitions that are defined according This content is not messaging-specific. to the methodology and maintained according to a strict maintenance process. For example, The logical layer defines logical message the ISO 20022 Financial Institution to definitions that can be used by one actor Financial Institution Customer Credit Transfer in a business process to instruct or inform (pacs.008) specification defines the data that another. The data elements specified in one Financial Institution sends to another logical messages refer to concepts in the to instruct a customer credit transfer (a business/conceptual layer for their definitions, payment). The data elements in the pacs.008 which ensures that the semantics of the specification, such as ‘Creditor’, or ‘Instructed logical message are well-defined, stable and Amounted’, refer to the semantic content in consistent from one logical message definition the business/conceptual layer above for their to another. Logical layer content is messaging definitions. ISO 20022 also specifies roles – specific, but does not impose a particular ‘Instructing Agent’, ‘Ultimate Creditor’ etc. format or messaging technology. and which role should send and receive which message in which business context. The physical layer is the technical realisation of the logical message, which can be generated mechanically from the logical definition. Several physical layer implementations

28 ISO 20022 Implementation Strategies

Governance or rejection. Approved change requests are There are two aspects to ISO 20022 applied to the messages, usually by the initial governance, linked to its two roles as a submitter, and a new version of the message methodology and a repository of content. The is published by the RA. standard itself – effectively the methodology – is governed by the ISO maintenance SWIFT, Standards and ISO 20022 processes. A revision of the standard is SWIFT has been at the forefront of financial requested by its users, a working group industry standardisation for over 40 years. under ISO Technical Committee (TC) 68 is SWIFT Standards developed the original convened, which works to deliver a new MT standard, which remains the dominant version of the standard (the present version is standard in international cross-border ISO 20022:2013). A draft is submitted to TC payments, and covers many other business 68 for approval. Once approved the standard areas, including securities settlement and is handed over to the Registration Authority reconciliation, corporate actions, trade finance (RA) (currently operated by SWIFT under and treasury. SWIFT is also a key contributor contract to ISO) for implementation. The RA is to ISO 20022. SWIFT contributed to the responsible for the technical implementation working group that defined the standard, of the standard, which involves maintaining is the single most significant contributor the standard’s content. Ensuring the of message definitions, and publishes the business relevance and consistency of this content, under contract to ISO, in its role content is the second aspect of ISO 20022 of ISO 20022 Registration Authority (RA). governance. Any user can propose to create SWIFT also operates as RA for a number new ISO 200022 messages (including new of other key industry standards, including content in the business model required ISO 15022 (securities messaging), ISO 9362 to define the concepts, terminology and (Business Identifier Code, BIC), ISO 10383 relationships needed to understand them). (Market Identifier Code, MIC), and ISO 13616 Each proposal is formalised in a Business (International Bank Account Identifier, IBAN). Justification – a standard document that captures in detail the context and motivation for the development. The RA checks this document for completeness, then hands it over to one of several domain-specific Standards Evaluation Groups (SEGs), who are required to judge whether the proposed development is justified in business terms. If so, development can begin. On completion the proposed messages are submitted to the RA for consistency and quality checks, then to the appropriate SEG for review. The SEG may request changes, which the submitter is required to implement, before the messages are again submitted to the RA for publication. A similar process applies for maintenance. Any user, or prospective user, can submit a change request for an existing message. An annual process operates where change requests are referred to the SEGs for approval

29 30 Acknowledgements

The authors would like to thank the Standards team members and FMI representatives that contributed to this paper.

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