The Bank of England (BoE) has published a consultation paper, 'A Global Standard to Modernise UK Payments', seeking views on its proposed strategy for aligning payment messages across the main interbank payments systems in the UK (CHAPS, Bacs and Faster Payments) with ISO 20022. Banks and other PSPs who are direct or indirect participants in the payments systems should consider the proposals in the light of current core systems and processes...and prepare for change.

This initiative is part of the BoE's work on the renewal of the RTGS service, and also ties in with the development of the New Payments Architecture (NPA) which will replace Bacs and Faster Payments. For more information on the NPA, take a look at our previous FIsion blog post, 'PSF Blueprint puts flesh on bones of Strategy for new UK payments system'.

What is the ISO 20022?

'ISO 20022' is a messaging standard which is a globally developed methodology for transmitting data. The intention is for it to create a consistent financial message standard for payments.

Currently, payment schemes such as Bacs, Faster Payments and CHAPS in the UK, and other high value payment systems globally, use varying message formats. This means that re-routing payments using a different scheme, or sending and receiving international payments, is difficult.

Key proposals

The consultation paper sets out three key proposals:

1. A Common UK Credit Message

The New Payments System Operator (NPSO), which operates Faster Payments and Bacs, has been working with the BoE to develop a "Common UK Credit Message" (CCM).

CCM is a standard message which will be used across all three systems in the UK (Faster Payments, Bacs, and CHAPs) and will also be compatible with overseas payment systems that have adopted ISO 20022. It's capable of carrying richer information than the current UK payment systems, for example information on the identity of payment originators and beneficiaries, and the purpose of the payment.

2. Implementing the CCM in CHAPS

The BoE intends to make several pieces of information mandatory in CHAPS, such as information on the ultimate originators and beneficiaries, structured name and address fields, and Legal Entity Identifiers. This information is not currently transmitted in CHAPS payments messages.

3. Migrating CHAPS to ISO 20022

The BoE has stated that the above mandatory changes will be introduced as part of the phased migration of CHAPS to ISO 20022, which will start no earlier than 2021. The actual timings will be determined by feedback to the consultation paper. The CHAPS migration is part of the BoE's May 2017 Blueprint for a new RTGS service for the UK.

The NPSO will align ISO 20022 and the implementation of the CCM across Bacs and Faster Payments, which will also start no earlier than 2021.

What are the benefits?

Some of the key benefits of ISO 20022 are:

  • Resilience: shared data elements, format and structure make it easier for payment service providers (PSPs) to automate redirection of payments. This, in addition to the CCM reducing the likelihood of data loss for these redirected payments, means the customer experience during an operational disruption could improve significantly.
  • Compatibility: will be improved across technology platforms.
  • Flexibility: processes developed to adopt ISO 20022 could help support emerging technologies and innovation.
  • Compliance and regulation: standardising and improving the level of data that is captured on originators and beneficiaries, and on the purpose of the payment, could help firms to identify fraud and economic crime more easily and efficiently. This also helps firms comply with certain legislative requirements, such as those under the Wire Transfer Regulation.

What’s the impact?

The switch to ISO 20022 will require significant changes and investment across the payments industry. PSPs may incur costs in relation to core systems changes, process changes, data storage and changes to user facing channels, amongst others.

In addition, if you're a….

  • Direct member of a payment scheme, your payment instructions to the central infrastructure will need to be compatible with ISO 20022;
  • Indirect member of a payment scheme, indirect access providers may require you to send your messages in the new format; or
  • Corporate treasurer or make payments, banks may require additional information from you.

Next steps

Responses to the consultation should be submitted by 18 July 2018. The BoE intends to publish a response by the end of 2018. It points out that successful implementation will be a complex and multi-phase process; the timeline in the consultation paper stretches to 2024 and beyond.

The NPSO plans to consult on the specific proposals for implementation of the CCM in the retail payments systems in due course, as the design of the NPA progresses.