What is ISO?
ISO stands for International Organisation for Standardisation. They are a non-governmental organisation that comprise of standard setting bodies from 167 countries, each body representing one country.
They collaborate across various fields such as technology, working conditions, country codes, risk management etc. Their goal is to ensure their standards are used everywhere by addressing global needs and ensuring all voices are heard.
Each of their standards have a reference number.
What is ISO 20022?
It is one of the standardisation initiatives that aims to provide consistent, rich and structured data for every kind of financial business transaction. This will eventually be adopted by all financial institutions. This includes changing the format of messages from the usual MT Formats to an XML format.
- Example of an MT message "field":
:59:/456789
Cinema Awal
Sangaki Ave
1190 456 Manama BH
- Example of the same message in XML format which will be known as "element":
<Cdtr>
<Nm> Cinema Awal </Nm>
<PstlAdr>
<StrtNm>Sangaki Ave</StrtNm>
<BldgNb>1190</BldgNb>
<Blk>456</Blk>
<TwnNm>Manama</TwnNm>
<Ctry>BH</Ctry>
</PstlAdr>
</Cdtr>
This means that financial institutions (FI's) were speaking with each other in English now they will be speaking Mandarin. A new language. This change will come both with its benefits as well as challenges (at least in the early days). This standard is expected to start to gradually roll out between FI's from 2022 and fully be enforce by 2025.
What will it impact?
- A new language means FI's internal systems should be ready to understand these incoming messages and also be able to send out messages accordingly.
- All stakeholders in the payment chain need to understand how to interpret this new language and its "elements". Hello XML!
- Data wrangling would be more efficient as the new language is much more structured. More Data = More insights
- AML and Sanction screening systems may become more efficient in detecting true matches and auto discounting false positives.
- Detailed information sharing between FI's and counter-parties in the transaction, which leads to better customer service and turn around times.
- Regulatory Reporting of financial transactions will be much more structured and detailed
The list goes on and the pros out-weight the cons (nothing is perfect anyway)
How are Crypto Assets involved?
Certain crypto assets have a sharp eye on the Financial Industry and understand very much what they are competing against and want part of the game and accordingly have ensured they become ISO 20022 compliant.
ISO 20022 compliant crypto assets will NOT replace SWIFT. It is an update to the current message format of financial institutions.
The following crypto assets have all declared they are compliant with the new ISO 20022 standards:
$MIOTA $HBAR $QNT $ALGO $XDC $XRP $XLM
Although ISO 20022 was introduced many years ago to replace the obsolete MT messaging standards which was introduced in the 1970s, it seems that it will shortly come to light this year in November 2022, during this time we will be in a co-existing period until 2025. Interesting to see how the financial world adapts to this new phase.
Food for thought:
- If the above crypto assets declare they are compliant with the new ISO 20022 standards, can this in any means open doors for further innovation for such assets to be inherently Travel Rule compliant?
- ISO 20022 was introduced in 2004 and has ever since been in continuous fine tuning till date, will FI's skew their path and drop their projects to adopt one of these compliant ISO 20022 crypto-assets as a means?
- What will it mean to the price action and adoption rate of crypto in general and the chosen crypto asset if a Financial Institutions decide to utilize one of them.
