Corporate Actions, do you speak 20022?
The ISO 20022 format has just been adopted for electronic data interchange between financial institutions for Corporate Actions. What is it about and why is this change necessary? Interview with Pierre Colladon, Senior Advisor Public Affairs and Regulation at Societe Generale Securities Services.
We talk a lot about the ISO 20022 format in exchanges between financial intermediaries. What is it about?
When intermediaries process financial transactions, they exchange information using standardised messages with a shared grammar and vocabulary. For Corporate Actions, the grammar and vocabulary are currently in ISO 15022 format, which provides for extremely powerful process automation. The ISO 20022 format uses very different grammar and vocabulary. It applies to settlement/delivery on T2S1, the processing of orders for funds and more recently the processing of General Meetings and shareholder identification requests. It is even used in the US for Corporate Actions, and is now being widely adopted in the payments field.
Why change the format for Corporate Actions?
A few years ago, the European Central Bank rolled out infrastructure using the latest format, i.e. ISO 20022. This will be the case for ECMS2, the central collateral mobilisation platform at the European Central Bank. And this strategic Eurosystem project aims to facilitate liquidity management in Europe. Its roll-out will impose rules on all operators in the world of collateral and on collateralised Corporate Actions. The language of the ECMS, the ISO 20022 format, will gradually be imposed on all operators dealing with securities in Europe. It is therefore a choice imposed on Corporate Actions.
How will we switch from the old ISO 15022 format to the new ISO 20022 format?
The potential of the new format was previously "limited" to facilitate translation between the two languages. The more the new format is used, the more difficult it will be to translate it automatically into the old format. Over time, just like a living language in which new words emerge, developments will be necessary and demanded by operators who use the ISO 20022 format, making any attempt to translate between the two formats impossible. ISO 15022 will become less important and obsolete.
What is the timetable for the adoption of the ISO 20022 format?
The pace of adoption will be dictated in Europe by the SCORE rules imposed by the ECB (European Central Bank) and collateral operators. The industry will experience a shock wave. The first impact will be felt in November 2023. It will affect central depositories and collateral operators. The shockwave will then be felt by custodians, participants in central securities depositories, and then the entire custody chain and institutional clients themselves. November 2025 is the current official date for the start of this second phase, but this date is a matter for debate, since much of the rest of the world will still speak the old language. Institutional clients impacted by this trend will first have to adopt this new format so that they can talk about ISO 20022 fluently. In fact, within 3 to 5 years, operators are likely to claim "I speak 20022"!
1 T2S : Target 2 Securities
2 ECMS : Eurosystem Collateral Management System