ISO 20022: We’re Just Getting Started

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Recently, a working group composed of payments processing experts completed work on a first draft of the ISO 20022 standards. These guidelines are aimed at encouraging the implementation of real-time electronic payments between financial institutions through standardized messages. This draft has already been circulated for review. The feedback from this review will be discussed at the upcoming International Swift banking conference, Sibos, which is being held next month in Singapore.

One of the main elements of these standards is uniform message terminology of real-time electronic payments. Aside from creating further harmonization in the industry, this standardization would also make it harder for criminals to use transmitted financial communications data to conduct fraud.

However, according to a recent blog in the Wall Street Journal, Barry Kislingbury, a senior principal solution consultant of ACI Worldwide, one of the companies that contributed to the draft, said that while this initial draft is aimed at world-wide harmonization of real-time payments rules, certain issues have remained unaddressed such as the problem of obtaining confirmation that completed payment transactions are compliant with worldwide sanctions orders.

He commented that “at the moment, sanction data is not passed with the message, payment or transaction. The main reason for this is liability–who does the sanction checking? … Any competent bank compliance officer would not accept sanctions checks done by someone else. The bank is liable if they break any rules so the bank has to do the checks.”

Standardization Isn’t Easy

So far, the attempt to achieve payments standardization has been no easy task within the EU, particularly due to political debates surrounding the issue of regulating non-bank PSPs, amongst other things. The EU Commission is still in the process of devising further payments regulations through legislative initiatives such as the PSD2 and the ‘Digital Agenda for Europe’.

The implementation of SEPA was also no picnic and that took almost 10 years to be realized in February 2012. Therefore having world-wide standards is rather ambitious and it could take quite some time for all the stakeholders to agree on a single set of rules that would work for everyone. In fact, as mentioned above, it seems that this draft is indeed a preliminary one with many concerns left unaddressed. Perhaps this is an attempt to get the ball rolling, so to speak.

Need For a Mandate

In these early stages of the ISO 20022, there is also the issue that there are certain players in the payments market, particularly in the U.S., who are not even aware of these proposed standards and seem keen to keep it that way.

In fact, Magnus Carlsson, a former corporate project manager for SEPA implementation, recently commented on the probable difficulty of convincing businesses to adopt ISO 20022 without a mandate similar to that of SEPA: “Just seeing, from a corporate level, the resistance to make any kind of changes, the business case you have to present will have to be so substantial that corporates will see some real benefits to it, or it’s not going to happen”, he said. “We’re talking about a country where 50 percent of the B2B transactions are still done by paper checks.”

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About Rachel Gauci

Rachel Gauci serves as Legal Counsel for Credorax, forming part of the legal team in the Malta office. She has over 3 years of experience in payment services legislation and anti-money laundering law.

Adv. Gauci holds a law degree from the University of Malta. Credorax, was the subject of the case study in her doctoral dissertation entitled, 'A Critical Analysis of the Payment Services Directive and its Practical Application'.

Prior to her role as Legal Counsel, Rachel was a Compliance Officer and an Anti-Money Laundering Legal Officer at Credorax.
Rachel provides legal advice on licensing requirements, contract negotiations, and any other ancillary issues concerning merchants, as well as legal advice concerning Credorax's core regulatory issues.
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