The pandemic has upset the move to ISO 20022 by worldwide payment systems. But the rationale and the will are still in place. Christian Westerhaus of Deutsche Bank gives his perspective on where the industry goes from here.


In late 2019, the payments industry was moving along with plans for a smooth transition towards the new ISO 20022 financial messaging standard, which was set to standardise the payment messages used in different systems around the world. The scale and complexity of the migration was daunting, but the path was clear. The opening months of 2020, however, have added major obstacles to progress.

The rise of Covid-19, and the global response to it, has pulled resources away from implementation and into business continuity exercises. Consequently, in March Swift issued new plans for the transition, including a delay in the implementation date for its cross-border payments services in ISO 20022. With all these changes, it is important to take stock and assess how they will affect participants and their plans for the transition.

Major undertaking

One thing that has not changed is the magnitude of the undertaking and the work necessary to see it through. An enormous amount of coordination is required, with key payment market infrastructures all migrating over the next few years – including the Eurosystem, EBA Clearing, the US Federal Reserve, the Clearing House and the Bank of England – together with Swift, in its capacity as sender and receiver of financial transaction information.

This entails not only the work carried out by various groups such as the Cross-border Payments and Reporting Plus (CBPR+), the Payments Market Practice Group (PMPG) and High Value Payments Systems Plus (HVPS+), but also a great deal of internal work within individual financial institutions as each business area, from operations to compliance, client service and others, fulfils its role in the wider company’s transition.

Even at this scale, most challenges are predictable to some extent. Yet the impact of the Covid-19 pandemic has added a dimension of uncertainty. Understandably, banks are keen to assess the potential impact; Deutsche Bank, for example, has fielded numerous enquiries from clients looking to gauge its views.

There is no question here about the value of the initiative and the need for ISO 20022 migration in the high value payments space. The benefits have been outlined numerous times – from greater interoperability between various settlement networks, simplified global business communication and richer information flows, through to higher levels of straight-through processing and more efficient compliance processes. However, there are justifiable concerns around the current timelines.

Deadline squeeze

In this respect, the most pressing deadline applies to the migration of the euro clearing system to ISO 20022, including Target services and EBA Clearing. This, at the time of writing, is still set for November 2021.

That date might seem to be still some way off, but the Covid-19 pandemic is placing new demands on banks’ resources, diverting capacity to ensure business continuity and support for immediate client needs.

The European banking community has raised these concerns with the European Central Bank (ECB), urging it to reconsider the November 2021 migration date. For its part, the ECB has responded, taking immediate action by issuing a market consultation in the form of a questionnaire to gauge the readiness and potential need to reconsider the timelines.

This consultation took place throughout May and June, with a final decision to be taken thereafter.

An extra year

These latest developments have also coincided with the recent decision by Swift to postpone its migration to ISO 20022 by a year to November 2022, which, in turn, has significant implications for banks preparing for the Target2/EBA Clearing migration. 

The delay came following major concerns expressed by many Swift community members about their ability to meet the 2021 migration deadline – and the fact migration projects are consuming significant budgets and resources without addressing many of the issues in cross-border payments.

To address these, Swift’s board and executive committee revised the approach and announced a new strategy in March 2020. Key to this is the introduction of a central transaction management platform. This aims to reduce the cost and complexity of ISO 20022 adoption and accelerate the rate at which participants can realise the benefits of the standard by holding a central copy of the complete payment data, while addressing key operational issues centrally.

To allow time for the new platform to be built, the start of the migration to ISO 20022 in the correspondent banking space was postponed to November 2022.

A banking predicament

The main issue now, however, is that prior to Swift’s decision to delay for a year, European banks had been working on the assumption that, as of November 2021, Swift would facilitate broader ISO 20022 reachability through the migration of its correspondent banking services, enabling banks to receive any message in the original format by facilitating central translation for receivers in their preferred format (the old MT or the new MX).

But if the Target2/EBA migration goes live prior to Swift’s cross-border payments transition, banks will face additional complexity with one-leg-out payments that are originated in ISO 20022 format, cleared via the payments market infrastructure in ISO 20022 format, but then forwarded via Swift as an MT message.

This will result in data truncation, as rich ISO 20022 messages will, based on their nature, not fit into an MT format. Consequently, the liability to deal with this has been transferred from the receiver to the sender. To address the issue, eurozone banks will have to implement a translator and find a way to deal with surplus data arising due to the format mismatch.

Issues around data are currently being tackled by the newly created Eurozone Working Group, of which Deutsche Bank is a member. We are working in close conjunction with Swift to put forward mitigating measures. As a group, this entails formalising market practice rules and working on ensuring data used to populate ISO 20022 one-leg-out payments can be transported across borders using the MT standard without truncation.

Going forward

Although banks outside of the eurozone can use an extra year to prepare for the move to ISO 20022 in the correspondent banking space, the European community will most likely, depending on the ECB’s final decision, face additional complexity due to the new timelines. As a result, banks will need to continue working on their ISO 20022 migration projects with the same urgency, considering newly created ‘restricted usage guidelines’ in their adoption plans.

Whatever decision the ECB takes, it will probably expect the eurozone industry to prepare for fully fledged user detailed functional specifications and/or have a back-up plan, in case another unexpected situation influences the global ISO 20022 migration timeline.

This is a huge and complex undertaking and it is critical for the banking community to ensure any issues that arise during the ISO 20022 migration journey are looked into and dealt with in a way that works for all participants and all circumstances.

Deutsche Bank will continue to play its part in this and will endeavour to keep clients informed of the latest developments. In this respect, we will be shortly publishing the latest in our series of ‘Guides to the ISO 20022 migration’ with a detailed frequently asked questions appendix.

As mentioned, the migration journey will be a long one. Only by working closely together as a community will we be successful.


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