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Financial Standards - a pandemic of complexity for the Financial Services industry

For millennia mankind has been fighting viral mutations, not only those that affecting humans, but also those impacting harvested flora and fauna. However, though significantly less life threatening, but still a huge challenge to the global financial services business, is the ever changing and proliferating library of financial messaging standards.

There is little doubt that the financial services industry, in particular the banking sector, is facing unprecedented pressures. As the news sinks in of (further) record fines for global banks,) in this case for rigging of Forex markets ( (with it seems plenty more cases of financial impropriety still to be heard (, it is clear the industry is far from over the turmoil that started back in 2008.

Banks are facing significant challenges, all of which have been compounded in recent years by slowing of global economic growth rates, record low interest rates and extensive quantitative easing. This has helped banks improve balance sheets and meet new capital adequacy requirements, but in turn has led to significant new entrants in the “shadow” banking space (crowdfunding being one example) filling the bank lending void left behind.  The biggest growth areas in banks are clearly the regulation and compliance departments which have seen unprecedented requirements in reporting to meet domestic, regional and global regulation.

Not only is the traditional banking model being challenged by what could be described as “business as usual” pressures, rapid advances in technology have led to new entrants challenging the traditional economic paradigms. It has been noticeable that in recent times the financial media and banking conferences have now woken up to these new challengers.  Bitcoin has been around for a few years to a mixed reception but the underlying block chain/public ledger principles are now being exploited in wholly new mechanisms offering near instant multi-currency financial settlement, Ripple being the most well known of these technologies.  Additionally, I haven’t even mentioned the massive disintermediation challenge in the retail area such as from Apple Pay, Google Wallet, Alipay etc.

Sadly, for banks this is just where the problems start, with the majority of these business challenges underpinned by a gamut of changing financial message standards or APIs, many of them brand new or built upon existing and rapidly evolving standards such as ISO 20022.

It is worth remembering the original aim of ISO 20022 was to establish a global platform to model and define financial transactions and as a consequence the underlying financial messages. This was in order to facilitate a common way of ensuring interoperability between geographies and business lines. However, though ISO 20022 modelling and its XML representation of financial messages has become widely accepted as the standard to adopt in modernising or defining new financial infrastructures, its flexibility and extensibility has unfortunately led to wide variations of use even for the same base message.

It was noted at the recent annual European Banking Association EBADay meeting that roughly 200 (!) domestic variations had been defined since the inception of SEPA from the base of just the SEPA Credit Transfer and SEPA Direct Debit schemes. Some of these derive from the EPC approved AOS (additional optional service) definitions defined by some EU communities, as well as variations in structured creditor remittance information. This complexity is also observed globally through the eyes of the CGI-MP group aimed at harmonisation of usage for bank to corporate financial messaging.  The payments working group undertook an extensive audit regarding the global use of the pain.001 message (payments initiation) resulting in a recently published guide to 48 different country/scheme related data requirements. The extensive variation that is evolving has been recognised at a recent meeting held by the ISO 20022 Registration Authority SWIFT. (

Thus it is fair to say that the heralded ISO 20022 modelling, a would-be panacea for consistency in financial message modelling, has in some ways become a rapidly mutating virus.  The analogy of viral mutations and the search for effective defence mechanisms seems very apt, with the extensive variation of formats now in existence meaning that for many organizations and indeed solution vendors, managing the complexity associated with the adoption of new standards is an additional headache on top of the economic and regulatory challenges described. Thus in the age of ever increasing complexity in terms of standards,  Banks and FIs are now searching for a vaccine that mitigates the impact of this particular viral like mutation.


Comments: (2)

Stephen Lindsay
Stephen Lindsay - SWIFT - La Hulpe 03 June, 2015, 15:181 like 1 like

Thanks for the post Neil – you make a great point. It’s true that fragmentation threatens to undermine some of the benefits of ISO 20022 (although the problem is by no means limited to this standard). As an industry we need to act to bring this problem under control.

As noted in your post, SWIFT is working with the Market Infrastructure community to address this issue, and there are many other initiatives that have this as their goal. But it’s important to be clear about the practical limits of harmonization. Many of the differences in the way standards are used arise from genuine differences in market practice and behaviour from one place to another, and these are largely unavoidable, or at least require harmonization that goes beyond standards towards national rules and practices. Other differences are a consequence of disconnected groups of users finding different standards solutions to the same problem. These are typically much easier to fix - or better yet prevent at source - by ensuring that groups working on standards are aware of each other and collaborate to agree best practice, and this is therefore the obvious place to begin successful harmonization.

It’s also worth noting that despite the complexity, SEPA did manage to replace 28 national legacy standards, developed over decades and in isolation, with a single standard – ISO 200222. And it works – I can send EUR from one Eurozone country to another as easily and cheaply as within one country. Overall that adds up to a great achievement, both for the standard and for the industry.

Neil Clarke
Neil Clarke - Volante Technologies - London 04 June, 2015, 11:57Be the first to give this comment the thumbs up 0 likes

Stephen, Thanks for your reply.

I fully agree with you that ISO 20022 XML offers great value and SEPA is a big success in its adoption of this standard, but as you say in implementing such new or replacement market infrastructures care is clearly needed with input from all stakeholders needed to try and avoid the onset of variation that can (and has) occurred.

As you note ISO 20022 adoption is clearly not alone as a standard that allows for variation, ISO 8583 and FIX to name but 2 have numerous variants that have now become well established.