Simple translation – key considerations
Simple translation is an approach whereby technical conversion is performed between the old formats (FIN/MT, or other proprietary formats), and the new ISO20022 (MX) formats, typically at the edge or periphery of the organisation’s system architecture, with little or marginal changes within the core components.
Whilst perhaps the simplest in approach, it presents a number of challenges and technical shortcomings which must be addressed or managed beyond the simple translation.
Loss of structure
When structured information is mapped to an MT upon translation it becomes unstructured. If later in the payment processing chain an MX message must be generated (eg for camt reporting), it becomes very difficult, if not impossible to make use of the data due to loss of structure which cannot be undone. Such challenges lead to lower STP and reconciliation rates.
Payments must be screened based on all available information; some of which cannot be mapped to MT messages, or if mapped within MT messages, place additional stress on compliance screening and typically result in a larger number of false positives, increasing burden on manual intervention and repair. As such, the pressure is on to screen data contained within MX messages and reconcile them with the translated MT messages before executing the underlying payment. This can be especially problematic if translation is taking place before the payment reaches the screening tools, leading to truncation or loss of fidelity in the data, and creates the need to store or otherwise persist the potentially lost or truncated data to ensure it can be reported when needed.
Banks must include accurate originator and beneficiary information, preserve and pass it along the payment chain under FATF recommendation 16. As ultimate creditor/debtor fields cannot be reliably mapped to and from an MT message, banks are at risk of truncating this information when using a central translation service, and as such violating legislation corresponding to this recommendation.
Loss of remittance information
Besides the loss of originator/beneficiary information, valuable remittance information or identifiers can be lost if they cannot be mapped to an MT message. This can lead to reconciliation issues for the beneficiary, resulting in a poor customer experience for FI and corporate customers alike.
Relying on simple translation is the least costly approach to the ISO migration in terms of implementation. However, it creates its own unique set of challenges, and provides for the least automation opportunities and will likely lead to a lower STP rates – implementation savings should be contrasted to potentially increased operational costs and customer experience impact.
With simple translation, a number of non-immediately visible risks can be introduced as in simple terms, the payment instruction is being modified outside of typically secured, audited and locked-down payment systems, allow for malicious and difficult to track modification of payment data. Beyond the malicious case, technical and operation glitches increase the propensity for incorrect data translation, and without an inherent ability to ensure security, traceability and auditability, risk is introduced. However, this can be contrasted with the reduction in risk associated to the IT delivery of a full migration program.
With additional data, operational aspects must be considered. Typical business operations such as payment initiation and visibility, repairs, exception management and workflows must be updated to cater for the additional data and complexity introduced through translations, and these are normally in the preserve of the existing non-ISO compliant legacy MT payment platforms.
Whereas relying on translation can be quite cost effective, it is only suited to a small segment of organisations, specifically those which can mitigate the shortcomings of simply translation:
- Banks that have NO correspondent banking activities AND
- That do not service corporate customers that demand untruncated reporting/payment initiation AND
- Do not process high volumes of transactions where STP rates have a significant impact on cost and operational excellence.