Implications of ISO:20022 on combating Financial Crimes

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CA Mayur Joshi
CA Mayur Joshi
CA Mayur Joshi is a Forensic Accounting evangelist in India. He is the co-founder of Indiaforensic and is author of 7 books on forensic accounting, fraud investigations and money laundering.

Banks and financial organizations are preparing to migrate their payment systems. They want to switch from the old system to the new and data-rich ISO 20022 standard. By 2025, it will be the universal standard for all payments systems. It supports 80 per cent of transaction volumes of the world. It contributes to 87 per cent of transaction value globally.

ISO 20022 was initially introduced in 2004. It is an international standard for electronic message relaying between financial organizations. Additionally, it was designed to provide the financial industry with a standardized platform. This platform is responsible for sending payment messages and sharing payment data.  It uses central vocabulary, a standard modelling technique for performing this operation.  And it also uses several Extensible Markup Language (XML) and Abstract Syntax Notation (ASN.1) protocols.

ISO 20022 In Anti Money Laundering

ISO 20022 is a standard for electronic data transmission between financial institutions. It describes a metadata repository containing descriptions of communications and business processes. It also contains repository content maintenance procedures.

These standards enable consistent data gathering and tracking. This will help secure payments, transaction banking, as well as risk management. It helps in fighting financial crime. It also helps in anti-money laundering (AML), technology, and product development.

ISO 20022 aims to remove many of the impediments that now slow down and cost global payments. These are the same impediments that are currently complicating compliance.

Moreover, increased automation and speed are part of the core of rationalizing ISO 20022. Artificial Intelligence and machine learning will be required for process automation. It will reduce friction throughout the payment lifecycle. The result will be highly automated and efficient data outcomes.

Financial crime is a challenge

In recent years, there is an increase in the demand for Certified Anti Money Laundering Experts. They conduct not only sanctions screening but also check compliance with AML regulations.  The US Office of Foreign Assets Control’s is also expanding the use of sanctions. Non-compliance can have serious ramifications.

OFAC penalized corporations across the globe for about $1.3 billion for violating sanctions programs. It also penalizes for facilitating money laundering through its operations.

Transaction screening and account screening solutions are critical in assisting businesses. They are critical in combating illicit behaviour. These solutions, however, are only as good as the data that powers them. Even the greatest filtering solutions are hampered by inconsistent formats and omissions. This allows financial crime to occur despite the best intentions.

ISO 20022 to Increase Transparency

Financial crime can be enabled by obfuscated, misleading, or insufficient data. This makes screening systems incapable of flagging alerts or detecting illegal activities. The traditional payment format contains insufficient information from counterparties. It makes it difficult to evaluate.  For example, whether a client’s name matches a sanctioned company or not.

It provides more specific information on all parties participating in payment. This will not only speed up payments but will also boost transparency.  This helps in improving sanctions screening. It will assist organizations in better detecting and preventing financial crime.

The standardized structure of ISO 20022 messages makes it easier to transmit information and also helps institutions’ AML and sanctions screening activities.

Improving Efficiency and Consistency

The ability to add features and data points to payments messages increases openness. It also allows crime screening technologies to provide more accurate and relevant alerts. Teams can devote more time and effort to actual matches and high-risk alerts. This will protect them from digging through large numbers of false positives.

Furthermore, organizations must continue to take steps to confirm beneficiary information. ISO 20022 allows for the inclusion of extra information to payments. Organizations must stay disciplined in their approach to validation. Payment misrouting is a real concern.

Better control of cash and liquidity risks

ISO 20022 additionally improves the visibility of payment traffic inflows and outflows. It happens due to enhanced payment data granularity, faster payment processing, and reconciliations. Treasury services will have improved visibility over cash and a real-time view of liquidity flows. This will help them in more accurate forecasting. Now, organizations can take a nimbler approach to manage and control their liquidity.

It is a tool for fighting financial crimes. This can also help the banks to improve their profitability and transparency.

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