The ISO 20022 XML standardization transformation

For financial institutions, the impact of the transformation to ISO 20022 will be enormous. But at the same time, it will enhance efficiency, control, transparency, and reconciliation. The transformation offers a robust and future proof standardization from which all market participants involved will benefit.

ISO 20022 is a standard for electronic data interchange between financial counterparties. It is continuously evolving, with new periodic releases in the market. The European Payment Council used ISO 20022 as a starting point to develop the single euro payments area (SEPA) scheme in Europe.

Most financial messages are currently sent through the so-called MT format to correspond between and around payments. The market is moving to the ISO 20022 standard for payments, with November 2021 as a first deadline, and 2025 as the worldwide deadline, after which no MT format support will be available anymore.

TARGET2 platform

The impact of the MT format change is not just on the messaging side but also impacts the TARGET2 platform. Where the operational day for financial institutions is dictated by TARGET2 for high-volume and high value payments, the MT messages are still the norm. As of November 2021, the platform will change by introducing a Central Liquidity Management (CLM) system. This means that the platform will be technically enabled for extended opening hours and the integration of TARGET2, T2S (securities) and TIPS (instant payments) will facilitate centralized liquidity management. And, as mentioned, ISO 20022 will be the new standard message format with all TARGET services.

This standardization means a future proof methodology that will lead to benefits for all parties involved. The increased efficiency will reduce costs. The new data components and richer information will lead to increased transparency and digital compliance as well as enhanced customer service, better straight-through-processing and improved reconciliation.

As of November 2022, all financial institutions that are processing SWIFT messages need to be able to receive and process ISO 20022 messages. However, in reality the deadline is even closer, as all messages through TARGET2 and EURO1/STEP1 will require the ISO 20022 XML format as of November 2021. This is despite the fact that the deadline for MT format support will end after 2025.

Organizational impact

The transformation to a CLM and adapting the ISO 20022 XML standard will impact different areas, such as the technology, operations, and business side of the organization. The impact on the technology side distinctly requires changes on the system and interface side. In most cases, these are part of a complex and detailed architectural structure and therefore it will be challenging to customize to the new standards. There is an option to simplify this process by making use of a central converter tool. Additionally, the CLM tool will require selection, which needs the right combination of knowledge and expertise, as well as a consideration of the changes involved concerning business flows.

The operational side will impact the change in account structure for the CLM, where these accounts together can be used to fulfil the reserve requirements. CLM can be used to manage and monitor the liquidity across all TARGET services. There is a change in the operational flows as well as the change in the existing applications towards this new system or tool. These changes require training and the adoption of new capabilities.

Complying with changes related to the technology and operation area will support the business impact this adoption raises. The market infrastructural changes that are required will be adhered to as well as the customer requirements that are changing and that need to be fulfilled.

Cloud solution

The introduction of CLM and the ISO standard is a massive project that needs a well devised project plan, but there is also another component to be considered. SWIFT is to launch a new cloud solution for financial institutions. Over recent years, an increased number of corporates have already joined SWIFT through the cloud and benefited from the advantages this brings.

For financial institutions, this means there will be an additional option for the handling of SWIFT messages, alongside using a SWIFT service bureau and having a direct SWIFT connection.

The cloud solution is currently expected in the second half of 2020. It will bring benefits with respect to total cost of ownership, but also increased independence and a diminished need to rely on the expertise and service of an SSB or in-house technical expertise.

Action plan

Although ISO 20022 XML is not a newly introduced format, an ongoing transformation for the standard to be adopted for the receiving and processing of SWIFT messages requires enormous change management for financial institutions. The transformation has other wide ranging implications, from the impact of the changing TARGET2 platform to the introduction of the CLM system.

While the transformation will future-proof standardization and have many positive upsides for financial institutions, there is no doubt that the deadline of November 2021 is rapidly approaching. In order to meet this deadline, financial institutions need an action plan fast, to decide how and in what way to adopt this new standard.


For more information on ISO 20022 XML issues, please contact Annelies Labots or Ruud van Walsum via +31 35 692 89 89.

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