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October 27, 2014
ISO 20022 in the United States: What, When, Why, and How?
At the October 2014 Sibos conference in Boston, there was considerable discussion about the International Organization for Standardization (ISO) 20022 standard, which many major non-U.S. financial markets began moving toward a few years ago. ISO 20022 is a public international standard for financial sector global business messaging that facilitates the processing and exchange of financial information worldwide.
In Canada, adoption drivers include the use of domestic messaging standards in proprietary ways that created inefficiencies and the need for enhanced remittance data to add straight-through processing and automated reconciliation, according to a Canadian speaker at the conference. A speaker from Australia explained how the new real-time payment system that country is building will use ISO 20022, and one of the drivers is the desire for rich data to enable automation.
The United States is behind in the adoption curve, which raises the question, why? Several Sibos sessions included discussion of a study commissioned by an industry stakeholder group and conducted by the advisory firm KPMG. (The stakeholder group—which consists of representatives from the New York Fed, the Clearing House Payments Company, NACHA–The Electronic Payments Association, and the Accredited Standards Committee X9—formed to evaluate the business case of U.S. adoption of the ISO 20022 standard.)
KPMG interviewed participants of markets already moving toward adoption and found that adoption was largely driven by both infrastructure change, as in the Australian example, and regulatory requirements. In addition, many U.S. firms, beyond the large financial institutions and corporations, lack in-depth knowledge about ISO 20022. Two additional barriers in the United States are (1) the exact costs of ISO 20022 implementation are difficult to pinpoint, in part because they vary by participant, and (2) the country has no industry mandate for adopting the standard.
In one conference session, a speaker categorized some of the strategic reasons the United States should move forward, framing them in terms of the risks of nonadoption. These reasons include:
- Commercial reasons: The U.S. industry will have to bear the incremental costs of maintaining a payments system that does not integrate seamlessly with an emerging global standard.
- Competitive reasons: Many countries are experiencing such benefits of the ISO standard as increased efficiencies and rich data content, but U.S. corporations and financial institutions will fall farther behind.
- Policy reasons: The U.S. market will become increasingly idiosyncratic, with more payment transactions conducted in currencies other than the U.S. dollar.
Recommendations from the KPMG study include initiating adoption of the ISO 20022 standard in this country first for cross-border activity, starting with wires, and then ACH. The U.S. industry should then reassess domestic implementation.
Because communication is keenly important to overcoming the lack of knowledge of ISO 20022 in the U.S. market, the stakeholder group is currently focusing on educating affected groups about the key observations and findings of the KPMG study.
No particular timetable or course of action has been determined for U.S. adoption, which makes it the ideal time for industry input. What's your institution's perspective on the adoption of the ISO 20022 standard in the U.S. market?
By Deborah Shaw, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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