In the survey conducted in May, the European banks had declared themselves in favour of postponing the migration. In addition to the effects of the Corona pandemic, the main reasons for this include the postponement of the ISO migration for cross-border payments already announced by SWIFT. At many financial institutions, both migration scenarios converge in one project, since it is simply not possible to separate payments via TARGET2 from cross-border payments. Large financial institutions with extensive correspondent banking operations in particular saw major risks in the divergence of migration dates. With this decision both events have now been synchronised again. EBA Clearing has also joined in and postponed its migration to 2022.
The relief about the postponement was certainly great – but what does this decision mean for the financial institutions and their projects? The last thing that should happen now is for financial institutions to sit back and slow down their projects, as there is now an extra year’s time to implement them. That would be the worst solution at this stage. Many financial institutions have underestimated the effort that the TARGET2 migration entails. On the contrary, the postponement now offers the opportunity to continue with the projects at full speed in order to make up for lost time. Leaning back and leaving off now only to pick up the process in early 2021 is not an option. It should also be noted that the start phase of the user tests was only postponed by nine months from March 2021 to December 2021. Releasing external resources will mean that the people who previously worked in the projects and acquired knowledge will no longer be available.
It should also be borne in mind that the specifications, which have already undergone two new adjustments this year, will continue to be adapted. The ECB still has pending change requests which were not yet relevant for the November 2021 migration. This will certainly change with the postponement. It can be expected that with the new UDFS in November further functionalities will be offered, which will have to be evaluated and implemented.
The objective of SWIFT is also not yet clearly defined. So far, it is known that a transaction management platform is to be built, which will act as a central "hub" to handle cross-border payments. There are no published specifications for this yet. In addition, new ISO message types are currently being defined, for example for fees and cheques, which must also be considered and implemented. Thus, there is still much movement and uncertainty in the upcoming ISO migration. As such, might one not wonder whether there could be an even further postponement for SWIFT? How would the ECB react then? Could there also be a further postponement of TARGET2, or would we then have to accept that the migration dates diverge? How does one deal with changes in already harmonised message formats, such as pacs.004?
And as if that were not enough, the ECB's decision on instant payments is also causing a stir. Based on discussions with market participants of the AMI-Pay, the ECB council has decided that, on the one hand, all PSPs with TARGET2 that have subscribed to the SCT Inst scheme (i.e. instant payments) must be reachable in TIPS. On the other hand, all ACHs offering instant payments should move their technical accounts from TARGET2 to TIPS. The implementation is scheduled for the end of 2021. The ECB will thus make TIPS virtually obligatory for those who are already participating in the instant payments procedure. This is important because a large number of financial institutions today are using the EBA's RT1 procedure.
Also, so far only the decision itself has been made and announced. Further descriptions such as technical details are still unknown and will be published sometime later. One must also ask what a future pricing model will look like, especially if fees are charged for cross-ACH transactions. What can a transaction fee look like and what effect does this have on the pricing of the clearing houses? The question also arises whether there is an increased settlement risk for the settlement of positions such as RT1, as TIPS involves an additional participant in the chain.
What's more, SEPA will also switch to the new 2019 ISO version in 2023 - according to the currently announced plans of the EPC. The current gap of more than one year with regard to the migration of TARGET2 and SWIFT may seem a long time off. However, it has to be considered that a lot needs to be done before: reading specifications, writing business concepts and preparing systems. Despite the migration being postponed to 2023, it may not be underestimated and we recommend to deal with this issue as early as possible.
As is evident, the next three years will bring many topics related to ISO 20022 for financial institutions, and every institution would be well advised to use the time gained by the postponement to realign its priorities.
This requires highly specific know-how, and one should not indulge in short-term budget considerations and cut back on resources that will then be urgently needed again in 2021.
Authors: Sabine Aigner, Thomas Ambühler
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