Everything to play for
26 May 2021
Juliette Kennel and Giles Elliot discuss the findings of ISSA’s latest ISO 20022 report and how the association will play its part in helping to promote and making ISO 20022 more accessible and easier to use
Image: ISSA
What does the adoption of ISO 20022 mean for the securities services industry?
Giles Elliot: Always a great question. ISO 20022 is actually three things the conceptual layer (the business model), the logical layer (the message models) and the physical layer (the technical syntax). What most people talk about is the messages but potentially more interesting to the future is the business model element.
This can be used to design and describe a number of business processes that may not be part of ISO 15022.
The securities market uses the ISO 15022 standards extensively and they cover the vast majority of the high volume interactions between participants very well with high straight through rates. There are areas, some of which we highlight in the International Securities Services paper, where the ISO 15022 messages have not got the structure to allow straight-through processing (STP) and efficiency but ISO 20022 messages have.
These include such areas as account opening for which existing ISO 20022 logic exists and corporate actions where further capabilities can be built out to increase automation. The feedback from our membership and others is that full adoption of ISO 20022 lacks a business case but focused adoption can improve the client outcomes and efficiency.
What challenges exist around the adoption of the ISO 20022 standard?
Juliette Kennel: As above the business case for full adoption is challenging to make, this is partly as the end clients such as asset managers are often insulated from the market messaging by their providers and hence are unaware of the improvements that could flow to them by changing the standards.
But there is clearly an investment cost for key market players to make this change and it forces firms to assess the benefits relative to existing message automation and depth of content.
Interestingly, payments moving to ISO 20022 is creating both an opportunity and a challenge — aligning to payments has logic but also creates a resource constraint on the ability of securities players to move simultaneously, hence the desire to move only after the payments industry.
Additionally, there is an industry agreement that for corporate actions and settlement flows ISO 20022 and ISO 15022 message sets should evolve in lockstep, which constrains the evolution of ISO 20022.
How will the adoption of the ISO 20022 data model bridge the gap between the old world and the new?
Elliot: To quote from the report: “All survey participants overwhelmingly agreed that ISO 20022 provided a good foundation on which future innovations could be unlocked by enabling interoperability across markets.”
The interoperability question is one of the biggest facing the industry at the moment. Until now we have failed to have globally interoperability in the securities markets; adding complexity, risk, confusion and on occasions affecting client service.
Not all interoperability challenges can be solved by adopting ISO 20022, but for those that we can solve we should act now as an industry to resolve.
The potential fragmentation between distributed ledger technology (DLT) and digital asset platforms and legacy platforms is a live problem — all talking the same business models and logical layers would reduce that problem to a simpler though still complex debate about rules, laws and regulations rather than an even more complex problem of translations in addition.
How will automation around corporate actions benefit from the adoption of ISO 20022?
Kennel: Corporate actions — this is a generic and wide term for everything from mandatory coupons and dividends to proxy voting and everything between. The surveyed participants believe that there is an opportunity from the adoption of ISO 20022 within this wide arena to enhance automation and expand data coverage to facilitate stronger risk management and client performance. The adoption of the ISO 20022 and clearer market practice rules will increase the STP of corporate actions towards those seen in settlements and reconciliations which will, in turn, increase client satisfaction, increase efficiency and reduce risk.
What is driving the adoption of ISO 20022?
Elliot: The feedback from ISSA participants is that unless forced to adopt, they will remain on existing standards. At the moment there are two main drivers for ISO 20022 adoption — regulation of course and the actions of the financial market infrastructures who have been leading the way with ISO 20022 adoption, particularly at platform renewal time. The bulk of momentum is not being driven by individual firm’s business cases. However, there was a strong view that we should be able to extract broader benefits and encourage industry driven adoption. ISSA has formed a working group to consider how we can make the process of adoption proactive rather than reactive, and what would make sense where. It will also be interesting to see the impact of the payments migration to ISO 20022, some members are saying this will not change the case for securities, others are not so sure.
How is the rise of digital assets affecting the adoption of ISO 20022?
Kennel: As we mentioned earlier digital assets have the opportunity to positively impact the adoption of ISO 20022, but could also add to the complexity. This is one area where the working group thinks that we as an industry can make a positive difference.
A digital asset platform is not going to become a market leader by re-inventing the securities industry without having the access to the greatest number of clients. The ISO 20022 framework means that you can take the business model and logical layer and say use a different syntax and still fit within the framework.
The DLT player does not need to adopt the whole business process, for instance, if they think clearing is obsolete if they are building a real time non-netting solution, then do not use those parts but use the bits of the standard that will allow you to interact with the market for settlement or confirmations.
This we believe will result in reduced complexity and a higher chance of success for the disruptor as disrupting the whole value chain and moving the dematerialise securities market onto your platform is extremely hard in an acceptable timescale.
What are the next steps for the industry? And what will ISSA be working on in this area?
Elliot: The paper makes four recommendations:
ISSA should help educate and inform the securities industry on issues related to ISO 20022 adoption and business drivers
The securities industry should focus on developing ISO 20022 capabilities in areas that are sub-optimal in current operating models, rather than attempting to force a holistic migration agenda
ISSA should look to promote interaction between ISO 20022 and other key industry standards
The industry should collaborate to define a set of standardised utility application programming interfaces
As part of these recommendations, ISSA will play its part in helping to promote and making ISO 20022 more accessible and easier to use.
The DLT Standards Working Group will look at the ISO 20022 standards in their work and how they can be used in DLT.
ISSA will also look at forming an API Standards Working Group to align with ISO 20022.
As an association, we are committed to improving interoperability with other industry standards, create a best practices paper to help the industry proactively drive adoption and finally measure the adoption over time to allow the industry to benchmark itself.
Giles Elliot: Always a great question. ISO 20022 is actually three things the conceptual layer (the business model), the logical layer (the message models) and the physical layer (the technical syntax). What most people talk about is the messages but potentially more interesting to the future is the business model element.
This can be used to design and describe a number of business processes that may not be part of ISO 15022.
The securities market uses the ISO 15022 standards extensively and they cover the vast majority of the high volume interactions between participants very well with high straight through rates. There are areas, some of which we highlight in the International Securities Services paper, where the ISO 15022 messages have not got the structure to allow straight-through processing (STP) and efficiency but ISO 20022 messages have.
These include such areas as account opening for which existing ISO 20022 logic exists and corporate actions where further capabilities can be built out to increase automation. The feedback from our membership and others is that full adoption of ISO 20022 lacks a business case but focused adoption can improve the client outcomes and efficiency.
What challenges exist around the adoption of the ISO 20022 standard?
Juliette Kennel: As above the business case for full adoption is challenging to make, this is partly as the end clients such as asset managers are often insulated from the market messaging by their providers and hence are unaware of the improvements that could flow to them by changing the standards.
But there is clearly an investment cost for key market players to make this change and it forces firms to assess the benefits relative to existing message automation and depth of content.
Interestingly, payments moving to ISO 20022 is creating both an opportunity and a challenge — aligning to payments has logic but also creates a resource constraint on the ability of securities players to move simultaneously, hence the desire to move only after the payments industry.
Additionally, there is an industry agreement that for corporate actions and settlement flows ISO 20022 and ISO 15022 message sets should evolve in lockstep, which constrains the evolution of ISO 20022.
How will the adoption of the ISO 20022 data model bridge the gap between the old world and the new?
Elliot: To quote from the report: “All survey participants overwhelmingly agreed that ISO 20022 provided a good foundation on which future innovations could be unlocked by enabling interoperability across markets.”
The interoperability question is one of the biggest facing the industry at the moment. Until now we have failed to have globally interoperability in the securities markets; adding complexity, risk, confusion and on occasions affecting client service.
Not all interoperability challenges can be solved by adopting ISO 20022, but for those that we can solve we should act now as an industry to resolve.
The potential fragmentation between distributed ledger technology (DLT) and digital asset platforms and legacy platforms is a live problem — all talking the same business models and logical layers would reduce that problem to a simpler though still complex debate about rules, laws and regulations rather than an even more complex problem of translations in addition.
How will automation around corporate actions benefit from the adoption of ISO 20022?
Kennel: Corporate actions — this is a generic and wide term for everything from mandatory coupons and dividends to proxy voting and everything between. The surveyed participants believe that there is an opportunity from the adoption of ISO 20022 within this wide arena to enhance automation and expand data coverage to facilitate stronger risk management and client performance. The adoption of the ISO 20022 and clearer market practice rules will increase the STP of corporate actions towards those seen in settlements and reconciliations which will, in turn, increase client satisfaction, increase efficiency and reduce risk.
What is driving the adoption of ISO 20022?
Elliot: The feedback from ISSA participants is that unless forced to adopt, they will remain on existing standards. At the moment there are two main drivers for ISO 20022 adoption — regulation of course and the actions of the financial market infrastructures who have been leading the way with ISO 20022 adoption, particularly at platform renewal time. The bulk of momentum is not being driven by individual firm’s business cases. However, there was a strong view that we should be able to extract broader benefits and encourage industry driven adoption. ISSA has formed a working group to consider how we can make the process of adoption proactive rather than reactive, and what would make sense where. It will also be interesting to see the impact of the payments migration to ISO 20022, some members are saying this will not change the case for securities, others are not so sure.
How is the rise of digital assets affecting the adoption of ISO 20022?
Kennel: As we mentioned earlier digital assets have the opportunity to positively impact the adoption of ISO 20022, but could also add to the complexity. This is one area where the working group thinks that we as an industry can make a positive difference.
A digital asset platform is not going to become a market leader by re-inventing the securities industry without having the access to the greatest number of clients. The ISO 20022 framework means that you can take the business model and logical layer and say use a different syntax and still fit within the framework.
The DLT player does not need to adopt the whole business process, for instance, if they think clearing is obsolete if they are building a real time non-netting solution, then do not use those parts but use the bits of the standard that will allow you to interact with the market for settlement or confirmations.
This we believe will result in reduced complexity and a higher chance of success for the disruptor as disrupting the whole value chain and moving the dematerialise securities market onto your platform is extremely hard in an acceptable timescale.
What are the next steps for the industry? And what will ISSA be working on in this area?
Elliot: The paper makes four recommendations:
ISSA should help educate and inform the securities industry on issues related to ISO 20022 adoption and business drivers
The securities industry should focus on developing ISO 20022 capabilities in areas that are sub-optimal in current operating models, rather than attempting to force a holistic migration agenda
ISSA should look to promote interaction between ISO 20022 and other key industry standards
The industry should collaborate to define a set of standardised utility application programming interfaces
As part of these recommendations, ISSA will play its part in helping to promote and making ISO 20022 more accessible and easier to use.
The DLT Standards Working Group will look at the ISO 20022 standards in their work and how they can be used in DLT.
ISSA will also look at forming an API Standards Working Group to align with ISO 20022.
As an association, we are committed to improving interoperability with other industry standards, create a best practices paper to help the industry proactively drive adoption and finally measure the adoption over time to allow the industry to benchmark itself.
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