Banks to chat with modern SWIFT messaging system

The Bank of Jamaica, BOJ, will give banks close to four years to transition to a new back-office messaging system, to make transfers faster and less cumbersome.

The BOJ wants to switch from the long-standing SWIFT messaging system, called MT, to a new one called MX that is built on a modern ISO 20022 standard. Banks will use this messaging system to communicate on the Society for Worldwide Interbank Financial Telecommunications, SWIFT, network to transmit global and local payments.

Banking clients are not expected to see any disruptions with the transition to the new messaging system, although banks, such as JMMB, will continue to assess the full impact of the shift.

“This adoption of this ISO 20022 standard is expected to offer clients added value, namely, greater efficiency in processing transactions, as transactions would be based on set standard processing; real-time, end-to-end view of cross-border payments, resulting in faster confirmation of transactions; and a reduction in foreign exchange risk due to real-time processing,” said JMMB Bank Jamaica CEO Jerome Smalling, who is also a former head of the Jamaica Bankers Association.

Smalling, for clarity, said BOJ will keep the SWIFT network, but update the messaging aspect to the new standard.

“The Bank of Jamaica is not moving away from the SWIFT messaging system; instead, the BOJ is adopting and transitioning from the original messaging standard developed by SWIFT, called MT, which is based on ISO 15022, to a newer messaging standard called MX, based on ISO 20022,” Smalling told the Financial Gleaner.

The BOJ will start allowing the new standard next year in conjunction with SWIFT MT, while phasing out the latter over time. Banks use the text messaging system via the BOJ’s clearing house, JamClear, to send funds from one institution to another.

“The bank’s target is to ensure that the JamClear systems will be updated to facilitate both the ISO 20022 standard and the current SWIFT MT standards by the second quarter of 2023,” the central bank said.

“This is to allow participants that interface with JamClear to transition at their own pace. The bank will facilitate coexistence of the ISO 20022 standard with the current SWIFT MT standards until November 2025,” it added.

The value of JamClear transactions totalled $6 trillion in 2021, up from $5.7 trillion in 2020. On the foreign currency side, JamClear transactions amounted to US$13.8 billion from US$10.8 billion a year earlier, according to the latest Payment System Data Bulletin published by the BOJ.

The ISO 20022 standard, or Universal Financial Industry Message Scheme, should improve payment-processing efficiency and promote interoperability among financial institutions, financial market infrastructures and end-users, the BOJ said.

The implications of the shift from SWIFT MT for transfers of securities was not immediately clear. The Jamaica Securities Dealers Association has not responded to requests for comment.

ISO 20022 is a multipart, international standard that enables a common global ‘language’ for the development of messages in the payments, cards and related financial services, securities, foreign exchange trading, and derivatives and trade services sectors, added the BOJ. The new standard describes a common business language and official shortening of words for faster recognition.

“The main ingredients of the standard are a development methodology, a registration process and a central repository,” the central bank noted.

“The standard’s registration process ensures that business models are in compliance with the standard for the exchange of information for financial services. It is also supported by a central repository, which includes a data dictionary and a catalogue of messages – and is accessible to all. The ISO 20022 Dictionary helps the financial community align and do business by providing concise definitions for common business concepts,” the bank explained.

business@gleanerjm.com