As the financial community seeks to reduce costs, mitigate risk and streamline their processes, corporates face challenges in managing their relationships with multiple banking partners – particularly when different channels, protocols, formats and data requirements need to be factored into the implementation process.
Various initiatives seek to address the ambiguity of how corporates and banks interact with each other, in particular regarding messaging formats and standards. Of note is the Common Global Implementation – Market Practice (CGI-MP) initiative, an industry-led effort that is gaining prominence as a key frame of reference for the implementation of ISO 20022 payments messages between corporates and banks.
CGI-MP embodies the notion that “a corporate can use the same message structure (for each message type) to interact with all of their transaction banks across the globe for payments initiation (credit transfer and direct debit), account and status reporting”.
The ISO 20022 proposition grew from the need to attain convergence across numerous overlapping standardisation initiatives that were looking at financial eXtensible markup language (XML) messages. XML had by then attained universal acceptance as the language for data storage and data exchange across all areas of data processing.
The ISO 20022 methodology provides a systematic means to define and describe financial business interactions. It also offers a discipline to create the underlying messages to support the exchange of information in a structured format among the players involved in those processes.
However, such exchanges only work when both sender and recipient have the same interpretation and understanding of the message contents. Furthermore, the concept of straight-through processing (STP) depends on the automated exchange of precise and unambiguous information. The design criteria for ISO 20022 standard messages is directed at achieving this goal.
As a messaging standard ISO 20022 has progressively gained momentum and is increasingly considered the standard of choice by more financial communities, notably with the renewal and refinement of financial market infrastructures. The current portfolio of ISO 20022 messages is more than 325, with others in development.
Since 2006, ISO 20022 messages have been published for the entire end-to-end payments chain, covering the corporate-to-bank payment initiation, bank-to-bank payment clearing and settlement, and bank-to-corporate account and status reporting. For payments, ISO 20022 adoption gained impetus from being the selected message format for the single euro payments area (SEPA).
Real-time gross settlement (RTGS) systems and low-value payments systems around the world are adopting ISO 20022. Examples include Target2 in Europe, the Zengin System in Japan, NG-RTGS (India), Fast and Secure Transactions aka FAST (Singapore), New Payments Platform aka NPP (Australia), PSS in Brunei and the International Payments Framework, while others are planning on building alignment with this standard.
The core ISO 20022 corporate-to-bank flows (along with their MT equivalence) are depicted below:
The ISO 20022 payments messages have, for example, provided the means to more fully capture structured remittance data along with the payment information, to support all language characters sets – including multi-byte characters such as Chinese, enhanced reference options and more detailed reporting of interest and charges.
ISO 20022 represents the next generation messaging standard for SWIFT.
SWIFT operates the ISO 20022 Registration Authority (RA) as the guardian of the ISO 20022 Financial Repository and the www.iso20022.org website.
While the ISO 20022 payments message definitions in themselves provide a comprehensive basis for data exchange, they have also led to mapping variations and differences in how the messages are implemented. The design of the payment messages caters for a range of payment initiation (credit transfer and direct debit) instrument types, methods and reporting requirements.
There are hundreds of individual data elements; most of them optional and values in common external code sets are often used selectively across message types. As a consequence, implementation inconsistencies appeared in the individual implementation approaches deployed by financial institutions, in particular highlighted when large corporates embarked on multi-bank implementations.
CGI-MP (formerly CGI) was established specifically to address these inconsistencies. Founded in October 2009, CGI-MP currently includes 98 registered members; of which 38 represent financial institutions (FIs) and 60 represent non-FIs. Essentially an ad hoc, voluntary forum that is open without membership fees to organisations with a common interest in collaboration, promotion and adoption of the ISO 20022 XML financial message set.
The goal of CGI-MP is to provide this forum for both financial (banks and bank associations) and non-financial institutions (corporates, corporate associations, vendors and market infrastructures) to progress various corporate-to-bank implementation topics on the use of ISO 20022 messages and to other related activities in the payments domain. In particular, it is to simplify implementation for corporate users and thereby promote wider acceptance of ISO 20022 as the common XML standard used between corporates and banks.
This CGI-MP goal is being achieved through consultation, collaboration and agreement amongst all players on a series of common implementation templates for relevant ISO 20022 financial messages, leading to their subsequent publication and promotion in order to attain widespread recognition and adoption. The high level of collaboration that has been attained among the major banks is significant to achieving global coherence with their respective implementations.
To date, 10 base implementation templates have been released:
- Customer Credit Transfer Initiation pain.001.001.03
- Customer Payment Status Report pain.002.001.03
- Customer Direct Debit pain.008.001.02
- Mandate Initiation Request pain.009.001.01
- Mandate Amendment Request pain.010.001.01
- Mandate Cancellation Request pain.011.001.01
- Mandate Acceptance Report pain.012.001.01
- Bank To Customer Account Report camt.052.001.02
- Bank To Customer Statement camt.053.001.02
- Bank To Customer Debit Credit Notification camt.054.001.02
These CGI-MP templates detail specific implementation guidance (market practice) on the use of the respective ISO 20022 XML schema, element by element. Each element is designated a usage status, for example, ‘R’ – Required, ‘C’ – Conditional, ‘BD’ – Bilaterally Determined, ‘NU’ – Not Used. For the credit transfer this detailed guidance is further segmented by:
- Automated clearing house (ACH) – domestic and international: General usage is equivalent to low-value or non-urgent transactions. Typically associated with a batch process and/or low priority transactions.
- Wires – domestic and international: General usage is equivalent to high-value or urgent transactions with high priority.
- Cheques/drafts: Typically, paper-based transactions.
Users of these templates can benefit from a common and unambiguous approach to market practice, designed to work across multiple FIs. In practice, this means that corporates can take their payments initiation processing to a more consistent level, based on a single global common implementation approach for each of their outbound payments initiation message types (credit transfer and direct debit) and for their various inbound account and status reporting message types. From a competition and risk management perspective, it should simplify the process for a corporate to expand or switch to a new bank.
An important dimension to the CGI-MP implementation templates is the use of appendices to provide further elaboration and specific guidance: for example, a list of individual payment system service level codes, country/region specific requirements and implementation use cases. Appendices support a more frequent maintenance cycle and are created, based on the business requirements of a specific message. These appendices recognise that certain markets may be subject to different regulations. Each may have its own local market practices that change over time with the emergence of new regulations and business requirements; for example, where a bank branch identification and/or local language and/or country specific regulatory and/or tax reporting is required.
The local country rules are based on the underlying local market requirements as this represents the lowest common denominator in terms of what data is required in order for the originating bank to make a valid payment. It means that all banks supporting a particular CGI-MP message implementation template will be required to accept the information contained within the applicable Appendix where they support that service. For example, a generic approach to Thailand’s withholding tax has been agreed, but this will only have applicability to banks that have agreed with their corporate customers to support this service.
Significantly, the CGI-MP implementation templates are also serving as a blueprint for enterprise resource planning (ERP) and treasury management system (TMS) vendors to incorporate these as part of their solution offerings. A number of vendors have made product announcements to this end.
CGI-MP work is conducted by four industry working groups: WG1 Customer Credit Transfer; WG2 Account Reporting; WG3 Customer Direct Debit and WG4 electronic Bank Account Management (eBAM). SWIFT serves as the designated CGI-MP support organisation and makes available the output of these groups on a dedicated web-site, www.swift.com/cgi.
As a market development catalyst, SWIFT brings the financial community together to work collaboratively and shape market practice, define standards and consider solutions to issues of mutual interest.
Here the Standardised Corporate Environment (SCORE) programme – more commonly referred to as ‘SWIFT for corporates’, is a SWIFT-led initiative to improve industry efficiency and effectiveness.
Part of this programme is set of industry agreed rules and guidelines governing how to implement, send or receive payment initiation and account reporting messages via SWIFT.
Notably, for ISO 20022 this guidance has adopted the CGI-MP message implementation templates as the base implementation reference source for the exchange of messages under SCORE. This represents an important foundation to achieving convergence with the common implementation of ISO 20022 messages.
Another significant development undertaken by SWIFT is MyStandards. As a collaborative web-based tool it offers banks and corporates a comprehensive way to manage new standards releases and to collect, compare and publish market practice. MyStandards is a purpose designed on-line resource to help users to:
- Browse and search MT and ISO 20022 message definitions;
- Collaborate with counterparties by creating and sharing usage guidelines;
- Compare usage guidelines set by market practitioners;
- Analyse the impact of versions on message definitions and usage guidelines; and
- Generate (customised) documentation and processable outputs.
The potential for CGI-MP to promote and drive standards implementation coherence in the use ISO 20022 for corporate-to-bank payment related message exchange is large. It illustrates that effective collaboration in coordinating multi-bank market practice can be a win-win situation for all stakeholders involved, and notably for both corporates and FIs.
Attaining true multi-bank integration depends on an agreed understanding of the information requirements that not only targets the common data elements but also lends support to those corporates and banks operating in multiple jurisdictions. Here, the value in collecting country and regional specific implementation guidance on the use of the ISO 20022 formats – where local involvement and endorsement will lead to alignment and collective publication under the CGI-MP umbrella – is certainly key to gaining greater standardisation producing results at a global level.
Tim de Knegt, treasurer for the Port of Rotterdam, discusses how he is looking to bring more value to the Port's clients using blockchain.
Regulation technology is fast gaining currency by transforming how financial institutions can tackle compliance in a swift, comprehensive and less expensive manner.
Many banks around the world, large and small, continue to experience major security failures. Biometric systems such as pay-by-selfie, iris scanners and vein pattern authentication can help.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.