The American Bankers Association (ABA) recently responded to the Federal Reserve’s plan to migrate its Fedwire Funds Services to the ISO 20022 message standard in just one day, according to a press release.
Although the Association said it supports the migration, it stated it is essential to ensure the move happens on the same day as The Clearing House‘s CHIPS service migrates to ISO 20022. The CHIPS service also operates the private sector wire clearing system; as a result, the ABA believes both migrations must be carefully coordinated with Fedwire to ensure success.
It also noted that it has serious concerns about the lack of detail on testing strategy and requirements for the move, saying, “The Board and Reserve Banks should issue a technology roadmap that establishes a series of key dates and milestones related to the system requirements and testing procedures.”
While this migration was initially planned for a phased approach starting in 2018, it was later postponed. Now that the Federal Reserve has opted for a single-day approach, meaning that all participants in the system must thoroughly test their systems rigorously or they may suffer disruption.
The Fed has stated that the main reason for delaying and opting for a single-day migration is to implement the changes at the same time that Europe’s SWIFT, TARGET2 and EURO1 systems begin supporting fully-enhanced ISO 20022 messages.
SWIFT and TARGET2 (operated by the European Central Bank) and EURO1 (operated by EBA Clearing) are expected to make this change in late 2022. As a result, the Federal Reserve plans to utilize a single-day migration to ensure its Fedwire Funds Service’s proprietary message format will support cross-border interoperability.
Due to these changes, and the expected launch of the FedNow real-time payments system in 2023, the ABA also noted that bank resources are being pushed to the limit. As a result, the organization asked the Federal Reserve Banks to consider pushing back plans to extend hours of Fedwire and the National Settlement Service, and make ISO 20022 migration “the highest priority.”
What is ISO 20022?
ISO 20022 is a multi-part international standard prepared by ISO Technical Committee TC68 Financial Services. It describes a common platform for the development of messages using:
- A modelling methodology for capturing syntax-independent financial business transactions
- A central dictionary of business items used in financial communications
- A set of XML and ASN.1 design rules for converting message models into designated schemas
In October 2017, the Federal Reserve Banks announced a timeline for the phased implementation of the ISO 20022 standard, with Phase 1 originally scheduled to begin on November 23, 2020 and end in late 2023. The planned phase implementation was later paused, however, due to a request by the Payments Practice Group to reconsider a same-day migration.