Posted In: Institutional Capital Markets
Donal O’Brien, Regional Executive for GBST based in Hong Kong, discusses the benefits of adopting ISO 20022 messaging standards.
A vital part of any financial transaction is adherence to a messaging standard. It essentially means all companies and systems can speak to each other in the same language. Having all messages in the correct format ensures fast and accurate transactions — it facilitates Straight-Through Processing (STP) and reduces the risk of errors.
With the increasing complexity of digital communications between worldwide financial systems, the current standard defining message format is under strain.
The ISO 15022 messaging format currently used by most organisations wasn’t designed to include much of the data being shoe-horned into each message. Many customised pieces of data are simply added into free-format text fields which means processing becomes a manual task. This introduces the likelihood of errors and slows down transactions.
Enter ISO 20022. The new XML format standard allows for greater complexity of messages and faster, more interactive responses. It has message types for a large range of transactions and business purposes, including payments, FX, cards, trade services and of most relevance for our clients, securities. Its data formats cover a comprehensive range of elements across the lifecycle of the transaction.
Using a more sophisticated standard like ISO 20022 reduces risk in communications by automating more of the message processing and speeds up the transaction.
There’s no deadline set for financial services to take up the new messaging standard but leading players in global trading are driving adoption. The world’s leading provider of secure financial messaging services SWIFT and many Central Securities Depositories (CSDs) are leading the push, with many already adopting ISO 20022 as a standard.
The Singapore Exchange (SGX) was one of the first CSDs to adopt the new standard in 2016. T2S in Europe, JASDEC in Japan and DTCC in the US have all embraced ISO 20022 messaging.
Recently SWIFT has been working with the ASX to move to the new standard for post-trade equities clearing and settlement services. They’ve undertaken an analysis of around 500 proprietary CHESS message to assess their compatibility with the new standard. The ambitious ASX project aims to standardise industry integration whilst also introducing distributed ledger technology (DLT) capabilities for data sharing.
As CSDs move to the new standard, this will mean larger brokers and custodian banks will need to support it as well. This will push the spread of adoption of ISO 20022 globally.
For organisations wanting to move to the new standard, many systems and processes will need updating and collaboration with core vendors will be crucial. We expect many market participants will develop 20022 capabilities in parallel with existing 15022 standard systems for a decade or so.
GBST is up to speed on the new standard and is evolving our products to support it. When our clients connected to SGX asked for our help in implementing ISO 20022 in 2016, we hit the ground running. We delivered the initial project seamlessly (and early) and have since implemented a second phase with equal success.
We are also working with SWIFT to make sure the ASX transition to ISO 20022 is a success. Go-live is targeted for April 2021 and we are supporting the full range of ASX functionality.
We expect other CSDs to move to the new standard in the coming years and we will be ready and eager to move our clients when that occurs as well.
Talk to us to find out how you can make the switch to ISO 20022.