Adoption of ISO 20022 Standards for RTGS in India

Reserve Bank of India

Scope of Presentation

• Adoption of ISO 20022 in India• Strategy• Approach• Implementation• Future Possibilities

Adoption of ISO 20022 in India :Strategy

Dr A S RamasastriCGM in Charge, DIT, RBI

ISO 20022 Adoption Strategy :Preliminary Work

• Existing RTGS is India uses proprietary message formats. • Working Group on Approach Paper for NG-RTGS

recommended adoption of ISO 20022 message standards.• RBI set up a Working Group on Adoption of ISO 20022

message standards with members from Banks, IDRBT, CCIL, NPCI, IBA and RBI

• Members of the Working Group recommended that there is a need for adoption of ISO 20022 message standard in India

• The Working Group also found that it was feasible to implement the standards for the enhanced RTGS planned by RBI

ISO 20022 Adoption Strategy :Eco system preparedness

• RBI took a decision to implement ISO 20022 message formats along with several other enhancements to RTGS as not doing now would postpone implementation by a few years

• ISO 20022 compliant Message formats were sent for certification by the ISO 20022 Standards group

• Montran was advised to make RTGS product ISO 20022 ready• IDRBT, the provider of Structured Financial Messaging

Formats (SFMS), was entrusted with the responsibility of • Designing the mapping document between existing proprietary

message formats and ISO 20022 compliant message format• Preparation of XSDs• Developing a convertor for temporary use of banks until they migrate

their systems to ISO 20022 compliant

Adoption of ISO 20022 in India :Approach

Dr A K HirveCGM, DIT, RBI

ISO 20022 Adoption Approach

• RBI formed the Working Group for Adoption of ISO 20022 Messaging Standards with following Terms of Reference• Designing ISO 20022 compliant message formats for Next

Generation Real Time Gross Settlement (NG-RTGS) and National Electronic Fund Transfer (NEFT) Payment Systems

• to suggest adoption of uniform referencing system for payment transactions and

• explore possibility of adopting uniform International Bank Account Number (IBAN) by banks in India.

• Membership• SBI, HDFC Bank, HSBC Bank, ICICI Bank and ING Vysya Bank, CCIL,

NPCI, IDRBT, DPSS, DGBA and DIT

ISO 20022 Adoption Approach…• Main issues and concerns

• ISO based messages are four to six times longer, • require twice the bandwidth and • about twice the disk space for storage.

• To address these concerns benchmark testing of ISO compliant messages was carried out with the involvement of member banks and SWIFT• During benchmarking, it was observed that these messages are, in fact, processed more

efficiently, and • have versatile content structure for better MIS and regulatory reporting.

• Benefits of Adoption of ISO 20022 standards• provide opportunities in other business areas such as Corporate Treasury Management,

Trade Finance• marginal cost for implementation, technical feasibility and other advantages, working

group suggested proactive adoption of ISO standards• Member banks suggested to implement it early as it will help in back to back automation

upto the customer end.

ISO 20022 Adoption Approach…• The WG designed identical message formats for RTGS and NEFT for

customer payments• Kept provision to introduce IBAN in future • provision of additional fields for ordering and beneficiary customer to

take care of future government MIS requirements• provision for NRE or such remittances as per RBI requirements• mandatory field for ‘Purpose code’ to improve MIS, better

communication to the customer and regulatory reporting• provision for multi currency payment and settlement.

• Other message formats include messages for interbank payments, debit /credit notification, and net clearing requests. As regards ‘own account transfers’, ISO message format already available in the ISO20022 library of messages was adopted.

Adoption of ISO 20022 in India:Implementation

Dr Anil Kumar SharmaGeneral Manager, DIT

ISO 20022 Implementation : Need

• ISO 20022 is required to improve and automate Corporate-to-Bank Communication, Bank-to-corporate bank account cash reporting

• More processes needs to be automated so new message types needs to be created. It is only natural to create new message types in XML format - hence the new ISO 20022 format.

ISO 20022 Implementation : Benefit

• From a system point of view, XML messages are actually easier to work with than any other format.

• For most contemporary systems XML is the default format when exporting data. Hence for new system implementations it is only natural to use this format. So we do have a business case.

• XML costs less to implement when we implement new systems.

ISO 20022 Implementation : Pros

• ISO 20022 standards are XML based – Easy to maintain and uses Java Technology

• MX messages typically carry more rich and explicit information than their MT counterparts, may help in Anti-Money Laundering

• May reduce costs to banks and increase in their competitive advantage in long-run

ISO 20022 Implementation : Cons

• Increase in Memory and CPU utilisation between MX and MT is nominal and negligible. Again this is highly dependent on the type of implementation, platform, language, COTS product (XML parser), etc.

• Although there is increase in disk space and network bandwidth requirement, so far this has not been a blocking factor for market infrastructures for countries who have decided to migrate their application to ISO 20022.

Big Bang Migration : Pros & Cons

• Pros: Uniform and timely migration, lower complexity, lower cost, uniform functionality

• Cons: Potential operational & Systemic risks• Requirements:– Thorough Industry testing– Cut off deadline well defined to stakeholders– Old system remains for fall-back and is also well

tested

Phased Migrations : Pros & Cons

• There are two options:– Option 1: Dual RTGS Systems to one CBS• Pros: Migration in line with institutional investment

cycles• Cons: More complex and more expensive for central

banks, more risks, inertia and potential for delay• Requirements:

– Design and development of dual RTGS systems– Agreed timelines of migration and follow-up and incentives

Phased Migrations : Pros & Cons

• There are two options:– Option 2: Single RTGS System with “transition

services” (at RTGS application or messaging layers)• Pros: Migration in line with institutional investment cycles• Cons: Less complex and less expensive for central banks as

compared with option 1, inertia and potential for delay• Requirements:

– Capable providers and robust transition services, e.g. legacy standards translation

– Agreed timelines of migration and follow-up and incentives

ISO 20022 Implementation : Process

• Decided to adopt Migration in Phased manner with transition services at the messaging layer

• Banks given three months time for infrastructure readiness• Three modes of access with two modes requiring ISO

compliance from day 1 and third mode provided converter.• Messaging Hub was made compatible with ISO 20022

standards• RTGS OEM product made its product ISO 20022 compliant• Pilot Testing with Banks carried out over a period of five

months to familiarise them with ISO 20022 compliant message formats

ISO 20022 Message Formats Implemented

Message Identifier Message Name Use of message Used version Additional Information

pacs.002.001 FIToFIPaymentStatusReport Yes V04 Multi-net settlement batch (MNSB) response and Own account transfer

pacs.004.001 PaymentReturn Yes V03 Undo previously settled payment

pacs.008.001 FIToFICustomerCreditTransfer Yes V03 Customer credit transfer

pacs.009.001 FinancialInstitutionCreditTransfer Yes V03 Interbank transfer, MNSB request and Own account transfer

camt.053.001

BankToCustomerStatement Yes V03 End-of-day NG-RTGS statementscamt.054.001

BankToCustomerDebitCreditNotification Yes V03 Customer Credit / Debit Notification

ISO 20022 Message Formats Implemented

Message Identifier Message Name Use of message Used version Additional Information

Admi.004 SystemEvent Notification Yes V01 Ack/Nack messages exchanged between ISO 20022 compliant systems upon delivery of messages

Camt.998 Broadcast Message Yes V02 Not an ISO 20022 messages. It is SWIFT proprietary MX message which is free to use under certain terms and conditions

Head.001 Business Application Header Yes V01 Each financial message i.e. Pacs.008, Pacs.009, Pacs.004, Pacs.002, Camt.054 will have Header which contains sender and receiver information alongwith Digital Signature of sender of the financial message.

Pacs.009 IDL Request Yes V03 Fund request from RTGS to Central Bank Security Settlement System (SSS)

Pacs.009 IDL Response Yes V03 IDL response from Security Settlement System (SSS) to RTGS

Pacs.004 IDL Reversal Yes V03 IDL reversal from RTGS to SSS

ISO 20022 Implementation Approach –Documents Released on RBI Website

• Documents Released on RBI website through Press Release dated March 7, 2013

• http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28270

Adoption of ISO 20022 in India:Future Possibilities

Dr A S RamasastriCGM in Charge

DIT, RBI

Future of ISO 20022 in India : Possible Areas of Implementation

NEFTACH

CBS of RBICBS of all Banks

Thank You