Bank of England says UK payment schemes must adapt to ISO messaging standard

Financial institutions that connect to three of the UK’s largest payment schemes will have to adapt to a new messaging standard, following the Bank of England’s plans to adopt ISO 20022.

“The UK payments industry is moving to ISO 20022, which is the new global standard for payments messaging,” the central bank said. It also announced it will open a consultation in June with interested parties on how the new standard will be implemented.

The new standard will be used for the UK’s Chaps, Bacs and Faster Payments systems.  

The UK is often seen as a leader in the payment sphere; it was one of the first adopters of instant payments in 2008. But the UK is a late adopter of the ISO 20022 standard, which is set by the International Organisation for Standardisation and already used by more than 120 countries.

ISO 20022 provides a standardised framework for payment messaging. Businesses are able to build their own message models under the framework to ensure they are adhering to the new framework.

Currently, the BoE uses a messaging format that was designed in the 1970s. The central bank says the format is “still functional”. Nonetheless, the BoE acknowledged the old format was not able to carry certain forms of data.

A shift to the new standard, the BoE said, will require businesses to adapt to new data requirements. Users of the payment schemes will have to ensure payment instructions are compliant with ISO 20022.

Correspondent banks and other indirect members of the payment schemes, meanwhile, may also have their payment messages sent in the new format. The BoE declined to say when businesses would have to adopt the new standard.

Benefits of ISO 2022

According to the BoE, the adoption of the new standard could “enrich the data” carried in payment messages and help comparability across the many payment systems in operation in the UK.

At the moment, payment schemes in the UK all use different messaging formats. This makes it challenging for users who want to re-route payments using a different system should an outage occur.

The ISO 20022 format, according to the BoE, can “adapt more easily” than other messaging standards and is “more responsive” to changes in emerging technology.

“ISO 20022 is emerging as the de facto standard for new and renewed payments schemes around the world,” Stephen Lindsay, head of standards at the Swift payment services provider, told Central Banking. The standard is “replacing proprietary and local formats for instant and high-value payment systems alike,” Lindsay said. “Swift is delighted by this development.”

“As more domestic real-time or instant schemes get going using ISO 20022, the potential to interconnect schemes through the correspondent banking system increases,” Lindsey said.

The BoE said a more standardised set of data will also make it easier for businesses to detect fraud. “Better data in payments promises to deliver significant long-term benefits for the economy,” the BoE said.

Continued overhaul

The BoE first announced it would be moving to ISO 20022 in 2016, as part of its programme to renew the UK’s real-time gross settlements programme.

The BoE formed two working groups, for data and interoperability, made up of representatives from across the payments industry. These groups will advise the policy decisions that must be taken in relation to the new messaging standard, the central bank says.

The data working group is advising on potential enhancements to payments messages, the BoE says. The interoperability working group has been looking at how banks can implement the ISO 20022 standard.

The two groups met for the first time in October and November 2017 respectively.