ISO 20022 Migration for the Australian Payments System –
Issues Paper – April 2019 5. Strategic Issues – Migration Approach

5.1 ISO 20022 migration approach

This consultation is seeking views on the preferred approach for the ISO 20022 migration. In considering the approach to migration, the scope of migration and strategic issues discussed in Section 4 should be taken into account. Regardless of the migration approach, there are four broad stages to the migration project that will be required:

• Industry consultation – this stage will seek feedback on the strategic issues and decisions associated with an ISO 20022 migration (this paper), summarise the views collected and suggest options for the key strategic issues (second half of 2019), and outline final conclusions from the consultation and implementation plan (2020). This stage includes the determination of the scope of the project, the migration approach, the governance arrangements, and the broad schedule.
• Preparation, planning and design – this stage will focus on industry and participant preparations for the implementation of system and process changes for the agreed migration scope and approach. At an industry level, governance arrangements and working groups will be established and engagement with relevant stakeholders will occur.
• Industry testing – this stage will involve a period of comprehensive industry testing to prove readiness for production cutover.
• Implementation – in this stage production environments will be prepared and implementation plans executed. All participants will have migrated in-scope messages to ISO 20022. This stage also includes project review and other completion activities.

The specifics of these stages will depend on the migration approach selected. Two possible options are summarised below. A third option, a like-for-like only migration, was considered. This option is not explored in more detail as it excludes the consideration of enhanced message content, a key migration project objective listed in Section 2.4.

5.1.1 Option 1 – Like-for-like migration followed by adoption of enhanced content.

This option uses a two phase process. In the first phase, a like-for-like mapping and use of existing message content from MT formats into ISO 20022 messages is undertaken. In this phase, no extra data fields or requirements will exist other than those required by the current messaging standard; use of enhanced message content will not be permitted. Following the like-for-like implementation, the second phase facilitates the adoption of enhanced content by introducing new data fields and increasing field sizes.

This project option enables industry readiness through incremental change while ultimately meeting project objectives and realising the benefits of enhanced content.

A key advantage of this approach is the balance of risks associated with the immediate adoption of enhanced content against the benefits associated with a migration to ISO 20022, taking advantage of content enhancements and potential efficiency improvements.

A drawback of this migration option is the extended project period, as it would require the back-to-back delivery of separate like-for-like and enhanced content migrations. This option may require the use of message translation services and a larger resourcing overhead.

5.1.2 Option 2 – Direct migration to enhanced content

This option involves migration directly from existing formats to ISO 20022 messages with enhanced content. The key advantage of this approach is that it is likely the industry will be able to realise the benefits of enhanced content sooner. In comparison to Option 1, this option does not require consecutive implementations and the overall project timeframe (and therefore funding and resource commitments) is likely to be less.

The industry project to successfully implement this option may need to be more carefully managed as the full project will need to be completed around SWIFT's timeline for cross-border work and project risks are therefore likely to increase, particularly given the number of participants involved and the range and extent of internal system changes that are likely to be required.

5.2 Managing the transition to new messages

For each migration option, there are different strategies that could be considered to help manage the transition from old to new messages (and, for Option 1, the transition from like-for-like to enhanced content). The strategies that are currently being employed in international migrations are:

• Big-bang – under this transition, all participants migrate to the new messaging simultaneously for a determined group of messages. This avoids the need for infrastructure to support multiple messaging types for participants and operators. However, it requires all participants to be ready on time, which is usually managed through checkpoints or stage gates during the project.

• Coexistence – under this transition, both the old and new (or like-for-like and enhanced content) message formats would be supported during a transition period. This removes some of the coordination problems of the big-bang approach, but adds cost and complexity due to the need to support multiple message formats and possibly dual systems for a period of time. Under a coexistence transition, a date would need to be set for when existing (or legacy) message formats would no longer be supported. One risk with this approach is that the nominated end date becomes the de facto big-bang implementation date.

  If a coexistence transition is adopted, there is likely to be a requirement for some participants to use a message translation service in order to ensure that their ISO 20022 migration occurs in the required timeframe. Such message translation capability could be developed by a participant themselves or by the use of vendor-supplied product. Usage rules for translation services would need to be agreed across the industry.

5.3 Project timing

Most ISO 20022 migration projects internationally are scheduled to be completed within four to seven years from initial consultation to implementation. This can provide some guide as to migration timing for Australia, although some international migrations are being done as part of larger system replacement projects and different jurisdictions may have different objectives, scope, and approaches. Achieving alignment with SWIFT's cross-border payments migration would require Australian domestic messages to migrate from SWIFT MT formats before 2025. Consequently, the RBA and APC propose that the project should be delivered before the end of 2024. Based on the migration options discussed in 5.1, Figure 4 breaks down the components of each migration project option.

5.4 Message harmonisation

Given the flexibility of ISO 20022, an important part of successful adoption of ISO 20022 is agreement as to how it is used. Compatibility with existing systems and processes, both domestically and internationally, is considered to be an important objective.

In aiming to achieve message harmonisation, the following background factors are relevant:

• The international HVPS+ group has published ISO 20022 message usage guidelines for high value payments processing.
• The international CBPR+ group is in the process of formulating ISO 20022 message usage guidelines for cross-border payments. Cross-border payments message usage guidelines will use HVPS+ guidelines as a starting point. The ISO 20022 structure of these payments is important as they are often converted to domestic high value payments by Australian correspondent financial institutions.
• NPPA has defined ISO 20022 message usage guidelines for a number of different payment-related processing scenarios covering customer payments, bank-to-bank payments and reporting. To improve back-office processes, it has also defined a range of ISO 20022 messages for use by its participants in payment investigation processes.

As the HVPS+ group has already developed guidelines for ISO 20022 messaging for high value payments, where applicable, these appear a sensible starting point for defining the new message standards for Australian high value payments. This will ultimately improve the interoperability of Australia's ISO 20022 messaging with other jurisdictions.