During a recent roundtable discussion, representatives of Russia’s National Settlement Depository, SWIFT and the Russian National SWIFT Association (ROSSWIFT) explored the opportunities – and the obstacles – on the road to ISO 20022 adoption.
Russia is taking a leading role in the implementation of international standards to underpin the efficiency and effectiveness of its financial market infrastructure.
For Maria Ivanova, Vice President and Head of Client Relations and Business Development at the National Settlement Depository (NSD), the crucial consideration when implementing financial market infrastructure solutions is not to "make the thing from scratch again". Speaking during a roundtable discussion which took place over breakfast the morning after the 6th annual SWIFT Business Forum Moscow, Ivanova was looking forward to attending the upcoming SWIFT-hosted MI Summit in Brussels.
"The MI Summit was born out of the MI Breakfast at Sibos, which I attended as the sole representative of the Russian community, having collected input from across the market," she said. "It is an excellent opportunity for networking. It allows for an open and honest exchange of views between very senior people from MIs across the world. You feel the importance of the moment. And it helps us decide the right way to go to develop our services correctly.
Harmonisation and cross-border globalisation are definitely the trend. We want to be able to communicate with other CSDs and iCSDs around the world, and we have to do it in the right way. In this case, SWIFT is the channel, and can give us the language.
"What we see is that harmonisation and cross-border globalisation are definitely the trend. We want to be able to communicate with other CSDs and iCSDs around the world, and we have to do it in the right way. In this case, SWIFT is the channel, and can give us the language," Ivanova continued.
The ‘language' to which NSD has made a strategic commitment is the international ISO 20022 standard for financial messaging. Implementation of ISO 20022 is gathering pace around the world, in part driven by major initiatives such as SEPA and TARGET2-Securities (T2S), and adoption is expected to escalate further and faster in light of migration by major market infrastructures such as CLS and TARGET2. However, in the securities business, the previous standard ISO 15022 is still widely used. NSD's early commitment to ISO 20022, in particular in the field of asset servicing, marks it out as a pioneer of the new standard.
In his speech in the opening plenary of the Business Forum the previous day, Eddie Astanin, Chairman of the Executive Board of NSD, had emphasised the depository's commitment to ISO 20022. He gave an overview of NSD's activities and showed how SWIFT is used in all five of the business areas in which NSD is active. With around 28 trillion RUB in assets under custody, NSD is recognised by Bank of Russia as a systemically important infrastructure, he explained, which requires additional controls particularly in the area of risk management. Outlining the ways in which NSD has addressed this requirement Astanin highlighted the importance of its project to automate proxy voting based on ISO 20022 standards.
During the roundtable, Matthieu de Heering, Head of Russia, CIS and Mongolia at SWIFT, confirmed that NSD is leading the market in actual implementation of the ISO 20022 messages for proxy voting. "The majority of the world is using ISO 15022 for corporate actions events. For proxy voting they put data in the free format field in the MT568, or they use files. In this area NSD is taking a leading role. You have said, we want to move from paper-based to electronic voting, we have an ISO 20022 strategy, the messages we need exist in ISO 20022 - so that is what we will do. You are creating the domestic market practice for use of ISO 20022 proxy voting messages for real."
In addition to its project to automate corporate actions and proxy voting - a major undertaking that will run to 2017 - NSD has also initiated another project using ISO 20022, in the area of investment funds processing, as Ivanova explained. "This will be a huge infrastructural project during which we will map all existing constructions for settlement funds processing to ISO 20022," she said. "This will allow those players who want to, to use SWIFT. We are realistic and we know there will be players for whom SWIFT is out of reach at this time - but even for them, the messages they will be using at least will be in accordance with international standards."
As de Heering pointed out, NSD will be in a position to leverage its investment and experience from one ISO 20022 project to the next. "You have the infrastructure and can leverage your investment and do more with it," he said. "The first ISO 20022 project will always be the toughest, but afterwards you will have more expertise, and the rest will be less difficult." Ivanova agreed, saying: "Of course we will reuse the expertise we have already built up. These projects are a logical progression for us." Sergey Putyatinskiy, CIO, NSD, added: "We started with the most difficult thing but from the market point of view the most important - and this will really change the surface of the Russian market."
The difficulties NSD faces should not be underestimated, however, Putyatinskiy continued. Speaking during a session focused on ISO 20022 during the Business Forum, he had told delegates: "This is an absolutely new topic for Russia. There are no experts in this area so we are pioneers." Not all customers are ready to use information in the new format, he added. Those who have never used ISO 15022 can take advantage of help from NSD to adopt ISO 20022. But there is another part of the market - international customers that have adopted ISO 15022 and now face either a complex migration, or need conversion services. "Mutual conversion between ISO 15022 and ISO 20022 is not impossible, but it is not easy, and parallel support for standards is complex," he said.
In the roundtable he elaborated further on the challenges he sees. "The next main thing is to make market participants understand what is going on," he said. "Having talked yesterday to some of the IT people they are less aware of what ISO 20022 is and of what NSD is doing." Ivanova agreed that "miscommunication is a major threat to all projects", and that elevating levels of knowledge about ISO 20022 among the IT community is a priority, through formal and informal industry gatherings, and the responsibility of all the parties around the table. SWIFT's de Heering cited the contribution of the co-operative's work to certify IT providers with ISO 20022 expertise in this context, and Roman Chernov, Executive Director, ROSSWIFT, emphasised the value of SWIFT's Standards Forum gatherings in continually educating market participants about the latest developments with ISO 20022, and how to benefit from them.
Alongside improving awareness of ISO 20022, making implementation easier for market participants is also a key priority, added Chernov. "We definitely see a future for ISO 20022 in the Russian financial market," he said. "The Bank of Russia is also going in the direction of ISO 20022 and I would like to stress how important it is for the payment and securities market infrastructures to make use of the same platform to support the implementation of ISO 20022 - by which I mean MyStandards, SWIFT's web-based standards management platform. This allows you to publish your requirements for ISO 20022 messages in a standard way, which is easy to read from the perspective of those who implement them, and also allows the downloading of the machine-readable part, the schema. Both NSD and the Bank of Russia using MyStandards would be great for market participants as they would have a similar approach, a similar technology and similar message schemas generated by this platform."
In addition, Chernov said, it would be very valuable for the Russian financial community if the MyStandards Readiness Portal was also used by both payments and securities market infrastructures. "This is a tool to help market participants produce messages which are correct, which are aligned with what has been published by market infrastructures and which they can process," he said. "This streamlines integration testing and enables implementations to move forward as rapidly as possible."
For Putyatinskiy another clear fillip for ISO 20022 adoption would be an end to co-existence with ISO 15022 for securities messaging. As he had told delegates at the Business Forum, "Hopefully one day we will hear that ISO 15022 will be discontinued, and then everyone will have to migrate." During the roundtable discussion, de Heering accepted this as an understandable viewpoint for a market which has taken a pioneering approach to ISO 20022. SWIFT will continue to support both standards while its community requires this, he said, with an end-date likely to come with a groundswell of conviction by market participants that a tipping point has been reached and the business case for wholesale migration is clear.
On the positive side of being a pioneer, Chernov pointed out that Russia's forward-thinking approach to ISO 20022 is benefiting the financial industry as a whole. ROSSWIFT has three working groups under its auspices - the Payments Market Practice Group (RU PMPG), looking mainly at interbank payments, the Securities Market Practice Group (RU SMPG) and the Corporates Market Practice Group (RU CMPG). All of these work on recommendations for the use of international standards in the Russian market. The CMPG has also recently carried out some exciting work on new messages, Chernov explained. "I would really like to highlight Russia's active role in developing new sets of messages," he said. "For those areas of the market where ISO 20022 messages simply do not exist, a country can submit a business justification to ISO asking it to approve the creation of a new set of messages. In the CMPG we are currently in the process of developing messages for use in the area of currency control, and a Business Justification has been submitted to the ISO RMG (Registration Management Group) for registration of the full set of currency control messages."
SWIFT's de Heering confirmed that when a community asks to create new messages, they are reviewed by the registration authority (in the case of ISO 20022 this role has been given to SWIFT Standards) and then sent to the relevant ISO standards evaluation group for review and approval. "We are hearing that other markets are looking at these currency control messages and confirming they would want to automate in this area. So we believe that these will be live messages which are used, and not only in Russia. It's not about volumes - it's about the ‘STP-ness', the ability to standardise, automate, and increase efficiency," he said.
Given the relatively complex process of taking messages through to ISO approval, Chernov said, it would have been very difficult for Russia to achieve this result without the support and expertise of SWIFT. "I am extremely happy that SWIFT is involved, and I think it's the right way to move forward," he added, echoing NSD Chairman Astanin who the previous day at the Business Forum had also emphasised the good understanding, trust and co-operation with SWIFT.