DLT, ISO 20022-style Standardization Power Innovative Services and Operational Efficiency. Here’s How

This article is written by Murex Digital Assets Product Manager Léandre Moreno.

For decades, financial institutions and market infrastructure players have deployed significant effort toward digitalization and streamlining communication of processes—these include payments, securities, FX trading and funds.

ISO 20022, a new global and open standard, creates a common programmatic language to enhance data quality, boost operational efficiency and reduce costs, powering business. This will help financial institutions build better, more profitable services, fueled by greater process automation and enhanced interoperability between systems, particularly regarding cash and securities management in payment and collateral systems.

ISO 20022 will be key to enhance customer experience in processes like cross-border payments, onboarding and instant payments.

However, ISO 20022 aims to do more than deliver improvements and enhancements of existing processes . The standard should release and enable innovative services and infrastructures—the digital assets space is a particular focus, not least because of the involvement of digital assets players.

Several private and public distributed ledger technology (DLT) providers have participated and contributed to the creation of ISO 20022, along with SWIFT. Therefore, a series of private and public DLT are natively ISO 20022-compliant for everything exchanges of assets- and payments-related. Most importantly, easy interoperabilty between DLTs is possible due to the common language.

The financial services provider , retail and wholesale banks, including the central bank, now have fit-to-purpose and modern tooling to digitalize and enhance operational efficiency of existing process. These include:

● Cross-border and interbank payments through digital money, including central bank digital currency
● Issuance of security (security token) and corporate action
● Customer due diligence and Know Your Customer (KYC)
● Liquidity management and deposit (deposit token)
● Collateral-based business processes, such as repurchase agreement deals and security lending

A DLTs-based solution backed by the ISO 20022 standard allows the broader financial industry to explore new businesses and services, such as real-time cross border payment, fractional digital assets, tokenisation of assets and more.

On a more technological aspect, not all DLT landscape actors are positioned on the same market segment. Therefore, ISO 20022 does not offer the same technical advantages to all participants.

Some positioned themselves to provide enterprise/private DLTs for the financial industry. Others are positioned to propose instant, cross-border payments systems using CBDC on public DLTs. Others are positioned toward native atomic swap of assets and assets tokenization.

Depending on use cases, functional requirements—instant settlement, privacy, low-cost transaction, ESG friendly, etc.—and technical requirements—quantum resistance, throughput, smart contract executability, etc.—the choice of one unique DLT covering an end-to-end use case is almost impossible today.

This is why standards like ISO 20022 and Common Domain Model are playing a major role in allowing institutions to deploy the best technology for each use case—a fragmented ecosystem of services. These standards allow native interoperability to streamline the entire end-to-end process and keep existing infrastructure systems in place, avoiding the big bank system and infrastructure replacement and continuing to meet regulatory requirements, such as data localization.

ISO 20022, in short, helps to avoid too much concentration on one single DLT. Diversification powers constant industry innovation. It is also important for healthy competition.

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