Are Fi­nan­cial Stan­dards in Sync with Dig­i­tal Econ­omy?

ISO 20022 now of­fers a ma­ture and grow­ing set of mes­sage def­i­ni­tions, com­pris­ing more than 325 mes­sage def­i­ni­tions. The stan­dard has gained mo­men­tum over time, and is now con­sid­ered the stan­dard of choice for any new or evolv­ing fi­nan­cial com­mu­nity.

Voice&Data - - FRONT PAGE - Saqib Sheikh [email protected]­ber­me­dia.co.in

In the fi­nan­cial world, where in­sti­tu­tions are un­der sig­nif­i­cant com­mer­cial and reg­u­la­tory pres­sures, stan­dard­iz­ing chan­nels and their mes­sage for­mats be­comes even more im­por­tant

In­dia is now an ag­ile and vi­brant mar­ket­place. The pri­vate sec­tor and in­di­vid­ual en­trepreneurs are chart­ing the course of de­vel­op­ment -- on­ward and up­ward. This is ma­jorly due to the young, per­se­ver­ing and lit­er­ate de­mo­graph­ics, how­ever, at the same time it is also a con­se­quence of eas­ing reg­u­la­tions and im­prov­ing in­fra­struc­ture.

Our na­tional com­mu­ni­ca­tions in­fra­struc­ture is one of the pil­lars on which the foun­da­tion of in­no­va­tion and en­trepreneur­ship is be­ing laid. The speed, se­cu­rity and ef­fi­ciency of com­mu­ni­ca­tions of in­di­vid­u­als and busi­nesses is based on stan­dard­ized and open net­works.

Con­sider a sce­nario where tele­com ven­dors in­sist on op­er­at­ing sep­a­rate and iso­lated net­works with their own pro­pri­etary stan­dards. Call­ing your friends and fam­ily would re­quire a Voda­fone-en­abled de­vice, SIM card and sub­scrip­tion plan. Reach­ing col­leagues at work would re­quire a dif­fer­ent Tata Do­como de­vice, SIM card and plan. And con­tact­ing over­seas coun­ter­parts would re­quire a third set of de­vices, con­fig­u­ra­tions and sub­scrip­tions. Shar­ing text mes­sages, emails, pic­tures and videos be­tween net­works would re­quire ei­ther man­u­ally tran­scrib­ing the con­tent or trans­lat­ing and trans­mit­ting it through don­gles and ca­bles – a cum­ber­some and er­ror-prone process.

In our hy­per-con­nected world, stan­dard­iz­ing the ex­change of in­for­ma­tion and thereby in­te­grat­ing is­lands of net­works and data is crit­i­cal ser­vices we use ev­ery­day. We may not im­me­di­ately ap­pre­ci­ate the value of stan­dards and the or­ga­ni­za­tions that work hard at prop­a­gat­ing th­ese, but we could not func­tion ef­fec­tively or ef­fi­ciently with­out th­ese.

Fi­nan­cial Stan­dards

In the fi­nan­cial world, where in­sti­tu­tions are un­der sig­nif­i­cant com­mer­cial and reg­u­la­tory pres­sures to en­sure the speed, safety and se­cu­rity of trans­ac­tions, stan­dard­iz­ing chan­nels and their mes­sage for­mats be­comes even more im­por­tant.

The sce­nario of war­ring tele­com ven­dors is not so con­trived as one may think. In In­dian fi­nan­cial mar­kets for ex­am­ple, banks rely on a dis­parate set of chan­nels and stan­dards to com­mu­ni­cate with cus­tomers, process pay­ments, ex­change trade fi­nance and trea­sury in­stru­ments, and re­port to reg­u­la­tors and gov­ern­ment agen­cies. Fur­ther­more, th­ese chan­nels and their stan­dards evolve at dif­fer­ent paces. The as­so­ci­ated costs and com­plex­i­ties con­sti­tute a large por­tion of IT spend in the bank­ing sec­tor, as much as Rs 7.1 crore an­nu­ally by our es­ti­mates. More im­por­tantly mind­share of crit­i­cal prod­uct man­age­ment, IT and oper­a­tions re­sources are pulled from cus­tomer­fac­ing value-cre­at­ing projects.

This is not the con­se­quence of malfea­sance on the part of ser­vice providers, but the re­sult of or­ganic pro­lif­er­a­tion of new in­stru­ments and ser­vices. The im­pact, how­ever, is the same – in­ef­fi­cient al­lo­ca­tion of scarce funds and re­sources on chan­nel in­te­gra­tion and oper­a­tions that pro­vides no com­pet­i­tive ad­van­tage.

ISO 15022-Lan­guage of the Fi­nan­cial World

A great deal of care and at­ten­tion goes into de­vel­op­ing fi­nan­cial stan­dards. The In­ter­na­tional Or­ga­ni­za­tion for Stan­dard­iza­tion (ISO) has es­tab­lished a Tech­ni­cal Com­mit­tee 68 (TC68) ded­i­cated to col­lab­o­ra­tive de­vel­op­ment of fi­nan­cial stan­dards.

At the cross­roads of the global fi­nan­cial com­mu­nity, SWIFT SCRL is en­trusted with man­ag­ing its stan­dards and best prac­tices. Un­der the um­brella of ISO and TC68, SWIFT SCRL is the reg­is­tra­tion author­ity for ISO 15022 (www.iso15022. org), or more com­monly known as Mes­sage Type (MT) for­mats, and the next gen­er­a­tion of ISO 20022 (www. iso20022.org) for­mats. As the reg­is­tra­tion author­ity, SWIFT SCRL sup­ports ISO and fa­cil­i­tates the co­or­di­nated de­vel­op­ment of th­ese mes­sage for­mats and with its ex­per­tise, tools and ser­vices promotes their adop­tion.

Whether you are trans­fer­ring funds to a loved one over the NEFT, or se­cur­ing your busi­ness by open­ing a let­ter of credit with your bank, you are us­ing th­ese

stan­dards, or a do­mes­tic de­riv­a­tive of th­ese stan­dards, to trans­act. They form the lan­guage with which the fi­nan­cial com­mu­nity speaks with one an­other.

ISO 15022 has been in use glob­ally for over 30 years. It was en­vi­sioned as a struc­tured and well-de­fined set of mes­sage types that would cater to pay­ments, trade fi­nance, trea­sury and se­cu­ri­ties mar­kets. It has been adopted world over and is baked into most fi­nan­cial soft­ware.

Un­for­tu­nately the stan­dard is rigid and as busi­ness needs vary greatly coun­try to coun­try, the stan­dard no longer meets the needs of a global in­ter­con­nected econ­omy. While in In­dia the bank branches are iden­ti­fied by the In­dian Fi­nan­cial Sys­tem Code (IFSC), over­seas it is a Busi­ness Iden­ti­fier Code (BIC). While Western economies are sat­is­fied with latin-based char­ac­ter sets, In­dia would like to use Hindi, Tamil, Ben­gali and its myr­iad of lan­guages.

ISO 20022–The Next Gen­er­a­tion of Fi­nan­cial Stan­dards

De­signed to over­come lim­i­ta­tions of ISO 15022, ISO 20022 is not just a mes­sage stan­dard con­sist­ing of fields, their lengths and char­ac­ter sets. It is a com­pre­hen­sive method­ol­ogy of defin­ing and de­scrib­ing fi­nan­cial busi­ness in­ter­ac­tions, and pro­vides the fol­low­ing key ben­e­fits:

1. ISO 20022 com­prises of a busi­ness dictionary, mod­el­ing lan­guage and mes­sage for­mats. Thus it struc­tures not only fields mes­sages, but also the in­ter­pre­ta­tion and un­der­stand­ing of mes­sage con­tents.

2. ISO 20022 de­cou­ples the mean­ing of a mes­sage and its con­tents from the syn­tax of the lan­guage it is im­ple­mented in. Thus im­ple­men­ta­tion lan­guages and tech­nolo­gies based on those lan­guages can evolve in­de­pen­dent of the stan­dard. Al­though the eX­ten­si­ble Mar­ket Lan­guage (XML) is the pre­ferred lan­guage of im­ple­men­ta­tion, it is not be­holden to it, and an­other im­ple­men­ta­tion lan­guage may re­place it in time.

3. ISO 20022 is a rich mes­sage stan­dard that pro­vides for longer field lengths, def­i­ni­tion of struc­tured and un­struc­tured in­for­ma­tion, non-Latin char­ac­ter sets (such as Dev­na­gri Hindi char­ac­ters) and ex­ten­sions. It of­fers flex­i­bil­ity in emerg­ing and dy­namic fi­nan­cial mar­kets such as In­dia. While offering stan­dard­iza­tion ISO 20022 does not force ho­mo­gene­ity.

4. ISO 20022 al­lows users to ap­pend ad­di­tional in­for­ma­tion, rather than putting it into nar­ra­tive text. For ex­am­ple ad­di­tional re­mit­tance in­for­ma­tion, in­voice de­tails and even a copy of a cheque can be sent with a pay­ment in­struc­tion.

5. With the com­mon use of XML, there are now read­ily avail­able host of off-the-shelf tools to ex­pe­dite the im­ple­men­ta­tion of ISO 20022. Of note is the MyS­tan­dards (www.swift.com/ mys­tan­dards) col­lab­o­ra­tive web-based tool pro­vided by SWIFT SCRL that al­lows com­mu­ni­ties to col­lect, com­pare, re­view and pub­lish their ISO 20022 based mar­ket prac­tices.

ISO 20022 now of­fers a ma­ture and grow­ing set of mes­sage def­i­ni­tions, com­pris­ing more than 325 mes­sage def­i­ni­tions across:

Pay­ments – Cash ac­count man­age- ment, pay­ments ini­ti­a­tion, clear­ing and set­tle­ment, and cash man­age­ment.

Se­cu­ri­ties – Pre-trade, trade and post-trade clear­ing and set­tle­ment, se­cu­ri­ties man­age­ment, se­cu­ri­ties ac­count man­age­ment, rec­on­cil­i­a­tion, as­set ser­vic­ing and col­lat­eral man­age­ment.

Trade Ser­vices – Pro­cure­ment, trade fi­nance prod­ucts and ser­vices, fore­cast­ing, rec­on­cil­i­a­tion, ac­count­ing and re­mit­tance in­for­ma­tion.

Cards – Card trans­ac­tions be­tween ac­cep­tor and ac­quirer, ac­quirer and is­suer, sale sys­tem and POI, ter­mi­nal man­age­ment, clear­ing and set­tle­ment and fee col­lec­tion.

FX – Pre-trade, trade, post-trade, no­ti­fi­ca­tion, clear­ing and set­tle­ment, re­port­ing and rec­on­cil­i­a­tion of FX prod­ucts.

The stan­dard has gained mo­men­tum over time, and is now con­sid­ered the stan­dard of choice for any new or evolv­ing fi­nan­cial com­mu­nity. Pay­ments sys­tems in par­tic­u­lar, and the Re­serve Bank of In­dia specif­i­cally with the Next Gen­er­a­tion Real Time Gross Set­tle­ment sys­tem (NG-RTGS), are lead­ing the charge of its adop­tion. Other com­mu­ni­ties that have adopted or are in the process of adopt­ing ISO 20022 are Ja­pan Se­cu­ri­ties De­pos­i­tory Cen­tre (JASDEC) for se­cu­ri­ties set­tle­ment, Sin­ga­pore Ex­change (SGX) for cor­po­rate ac­tions, China Na­tional Ad­vanced Pay­ment Sys­tem (CNAPS) for high and low value pay­ments, and the New Pay­ments Plat­form (NPP) in Aus­tralia for low value pay­ments.

Con­clu­sion

Stan­dard­iza­tion of com­mu­ni­ca­tion in­fra­struc­ture may not be ex­cit­ing front-page news, but its im­pact is enor­mous. As In­dian en­trepreneurs are un­shack­led and the econ­omy re­bounds, our in­fra­struc­ture must be pre­pared to sup­port them. This will re­quire fo­cus and col­lab­o­ra­tion in the de­vel­op­ment and adop­tion of stan­dards.

De­signed to over­come lim­i­ta­tions of ISO 15022, ISO 20022 is not just a mes­sage stan­dard con­sist­ing of fields, their lengths and char­ac­ter sets. It is a com­pre­hen­sive method­ol­ogy of defin­ing and de­scrib­ing fi­nan­cial busi­ness in­ter­ac­tions.

(The au­thor, Saqib Sheikh, is COO, SWIFT In­dia. He is avail­able at [email protected]­dia.org.in)

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