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How Can European Banks Meet the ISO 20022 Migration Deadlines for TARGET2 and SWIFT?


First published in 2004 – and already broadly used in some quarters – ISO 20022 is rapidly set to become the de facto standard for financial messaging around the world, replacing MT messages.

For financial institutions, the impact of this will be significant. ISO 20022 will facilitate real-time payments and better interoperability, improving the quality and structure of financial messages and providing rich data with each transaction. In turn, this will enable everything from enhanced analytics to automated invoice reconciliation, delivering an enhanced experience for end customers.

Looking purely at the benefits, you might wonder why more financial institutions haven’t rushed to adopt ISO 20022 messaging. In reality, readying an internal payments engine to receive, process and send rich ISO messages can be complicated by legacy infrastructure, conflicting priorities, and strained resources –which goes some way to explaining why more haven’t already acted to make their payments engines compliant and able to capitalize on the rich data.

Unfortunately, this slow pace of adoption can’t continue – and particularly not in Europe, where Real-Time Gross Settlement (RTGS) systems under the control of the European Central Bank (ECB) and Euro Banking Association (EBA) have to contend with rapidly approaching ISO 20022 deadlines.

As deadlines loom, European banks must act

For those transacting through TARGET2 and EURO1/STEP1, the current deadline to be able to receive, process and send ISO 20022 messages is November 2021 (even with SWIFT's most recent push to November 2022). While this may seem a while off yet, the harsh reality is that the process of readying for ISO 20022 is often long-winded, resource-intensive and technically challenging. And European banks are by no means the only ones facing this pressure.

SWIFT has also mandated that all financial institutions processing SWIFT messages must be able to receive and process ISO 20022 messages. Although SWIFT has extended the timeline for the ISO 20022 start point by one year to November 2022, "the end date to enable full ISO 20022 for cross-border payments remains as originally planned, November 2025." Certain financial institutions with high levels of intermediary business in correspondent banking chains may also be required to send ISO 20022 messages, based on received ISO 20022 payments.

So, whether a bank is transacting via EURO1/STEP1, TARGET2, processing SWIFT messages, or both, they’ll need to be ready ahead of the deadlines. And while SWIFT will offer a transition period of interoperability supported by optional translation capabilities, this won’t be enough in the long term. Especially since banks will need to consider the fraud and compliance issues inherent within this if they’re still actually processing MT messages.

What needs to happen?

What does the approaching deadline mean for European financial institutions? Will they need to complete a full ‘rip and replace’ of their payment engines? In time, perhaps, but this isn’t a feasible option in the short term and certainly not to hit the deadlines.

Yet even making alterations or updates to payments infrastructure is easier said than done. Most banks have multiple complex and highly personalized engines, which are difficult to adapt to new standards, especially given the need to keep operations running smoothly in the meantime. And though there are options on the market that can offer a conversion layer for ISO 20022 messages in and out, this doesn’t really provide banks or their customers with the full, rich data the standard is intended to provide.

It’s easy to see why a bank might fall back on a solution that only meets the minimum requirements of ISO 20022. However, since there’s no avoiding the direction of travel for financial messaging capabilities, a smarter move would be to invest in solutions that can iterate and adapt, providing an insulation layer that gives banks full oversight of rich data messages, while protecting the existing engines from the strict deadlines of the mandatory migration.

Even this phased approach will demand immediate action. From our experience, getting the necessary insulation layer in place is a process that might take 9-12 months, with a committed time investment from the line of business, risk and compliance, and operations teams. So, while an immediate start is needed in order to hit the deadline comfortably, the window of opportunity is still very much open.

A partner for progress

The key trick to meeting the migration deadline is to work with a partner that can provide ISO 20022 native solutions, delivered with technical expertise and causing minimal disruption. For European organizations, the move to ISO 20022 is a regulatory event that can’t be avoided, no matter the challenges that exist. While time is certainly running out, there are options available – especially for those that invest in solutions designed for rapid deployment with the ability to continually evolve as required.

And, done right, this process won’t only enable European banks to meet requirements. It can also be transformed into a business opportunity, creating a more agile payments environment and helping banks compete more effectively over the next decade and beyond.

Understanding ISO 20022 and its requirements is the first step to building an effective strategy for implementation. With insights from payment experts, we’ve debunked some popular myths around the messaging standard. Download our eBook now to learn more.