[Federal Register Volume 86, Number 191 (Wednesday, October 6, 2021)]
[Notices]
[Pages 55600-55607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21801]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
[Docket Number: OP-1613]
New Message Format for the Fedwire[supreg] Funds Service
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of adoption of message format and request for comment.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is announcing that the Federal Reserve Banks (Reserve Banks) will adopt
the ISO[supreg] 20022 message format for the Fedwire[supreg] Funds
Service. The Board is also requesting public comment on a revised plan
for migrating the Fedwire Funds Service to the ISO 20022 message
format. Specifically, the Board is proposing that the Federal Reserve
Banks would adopt the ISO 20022 message format on a single day rather
than in three separate phases, as previously proposed. This single-day
migration would be targeted for, and would be no earlier than, November
2023. Adopting ISO 20022 for the Fedwire Funds Services is part of a
broader set of strategic initiatives to enhance Federal Reserve payment
services, including an initiative to potentially expand the operating
hours of the Fedwire Funds Service and the National Settlement Service.
DATES: Comments must be received on or before January 4, 2022.
ADDRESSES: You may submit comments, identified by Docket No. OP-1613,
by any of the following methods:
Agency Website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: [email protected]. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Address to Ann E. Misback, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and
[[Page 55601]]
Constitution Avenue NW, Washington, DC 20551.
All public comments will be made available on the Board's website
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons or to remove personal
information at the commenter's request. Accordingly, comments will not
be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper in Room 3515,
1801 K Street NW (between 18th and 19th Streets NW), between 9:00 a.m.
and 5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Evan Winerman, Senior Counsel (202-
872-7578); or Cody Gaffney, Attorney (202/452-2674), Legal Division;
Kristopher Natoli, Manager (202-452-3227); or Amber Latner, Lead
Financial Institution Policy Analyst (202/973-6965), Division of
Reserve Bank Operations and Payment Systems.
SUPPLEMENTARY INFORMATION:
I. Background
The Fedwire Funds Service is a real-time gross settlement (RTGS)
system owned and operated by the Reserve Banks that enables
participants to make immediately final payments using their balances
held at the Reserve Banks or intraday credit provided by the Reserve
Banks. The Fedwire Funds Service and the CHIPS[supreg] funds-transfer
system, which is owned and operated by The Clearing House Payments
Company L.L.C. (TCH), are the main large-value payment systems in the
United States.\1\
---------------------------------------------------------------------------
\1\ In 2020, the Fedwire Funds Service processed approximately
184 million payments with a total value of approximately $840
trillion, and CHIPS processed approximately 117 million payments
with a total value of approximately $419 trillion. See https://www.theclearinghouse.org/media/new/tch/documents/payment-systems/chips-volume-and-value.pdf.
---------------------------------------------------------------------------
At present, the Fedwire Funds Service uses a proprietary message
format that supports multiple types of communications, including (i)
``value'' messages that order the movement of funds, (ii) ``nonvalue''
messages that do not result in the movement of funds but rather
communicate information or requests to other Fedwire Funds Service
participants, and (iii) other messages that enable Fedwire Funds
Service participants to request account balance information and the
processing status of payment orders. The present Fedwire Funds Service
message format can be mapped to--and is interoperable with--the CHIPS
message format and the message type (MT) format of the SWIFT messaging
network.
In 2004, the International Organization for Standardization (ISO)--
an independent, non-governmental organization currently comprising 165
national standards bodies--published the ISO 20022 standard, which
includes a suite of message format standards for the financial
industry, including messages for payments, securities, trade services,
debit and credit cards, and foreign exchange. ISO 20022 messages use
extensible markup language (XML) syntax, have a common data dictionary
that can support end-to-end payment message flow, and include
structured data elements that provide for potentially richer payment
message data than the current Fedwire Funds Service message format. ISO
last reviewed and confirmed the ISO 20022 standard in 2019.
II. Adoption of the ISO 20022 Standard for the Fedwire Funds Service
For the reasons set forth below, the Board is announcing that the
Reserve Banks will adopt the ISO 20022 standard for the Fedwire Funds
Service. Migrating the Fedwire Funds Service to the ISO 20022 message
format will provide a variety of policy and operational benefits and
was supported by commenters.
A. Summary of the Board's 2018 Federal Register Notice Relating to the
Adoption of the ISO 20022 Standard
On July 5, 2018, the Board published a notice of proposed service
enhancement and request for comment (2018 Notice) on a proposal to
adopt the ISO 20022 message format for the Fedwire Funds Service.\2\
The 2018 Notice more fully described the current Fedwire Funds Service
message format and the ISO 20022 message format, including tables that
compared the two formats with respect to various message elements. In
addition, the 2018 Notice described payments industry efforts related
to ISO 20022, including outreach by the Reserve Banks and coordination
efforts between the Reserve Banks, TCH, and other stakeholders.
---------------------------------------------------------------------------
\2\ 83 FR 31391 (July 5, 2018).
---------------------------------------------------------------------------
The 2018 Notice further described the potential benefits of
adopting the ISO 20022 message format for the Fedwire Funds Service. In
particular, the Board highlighted potential benefits, including
increased efficiency due to greater interoperability among global
payment systems and types of payments, richer data that could improve
anti-money laundering and sanctions screening, and broader adoption of
extended remittance information (ERI).\3\
---------------------------------------------------------------------------
\3\ ERI generally refers to details in the payment message
regarding the purpose of a business-to-business payment. For
example, a business that sends a payment to a vendor could include
details regarding the invoices against which the vendor should apply
the payment.
---------------------------------------------------------------------------
B. Public Comments Relating to the Adoption of the ISO 20022 Standard
The 2018 Notice included a request for comment on the potential
benefits and drawbacks of adopting the ISO 20022 standard. The 60-day
comment period ended on September 4, 2018. The Board received 17
comments from a range of industry stakeholders, including depository
institutions, credit unions, industry associations, software vendors,
and other market infrastructure operators.
The commenters all supported the proposal to adopt ISO 20022.
Commenters who expressed a view on the benefits of adopting ISO 20022
generally agreed that ISO 20022 would produce the benefits that the
Board identified in the 2018 Notice. Commenters also identified other
potential benefits, including the possibility that adopting ISO 20022
as a global standard could increase competition in the payment
ecosystem by reducing the cost of entry for payment processors and new
market infrastructures.
The 2018 Notice also requested comment on the impact on Fedwire
Funds Service participants and service providers of adopting the ISO
20022 standard. Commenters generally agreed that, as described in the
2018 Notice, the costs of implementation for a particular participant
would vary depending on how that participant accesses the Fedwire Funds
Service. In particular, Fedwire Funds Service participants that access
the Fedwire Funds Service through solutions that require participants
to develop their own software (or rely on software from vendors) will
incur greater costs than participants that access the Fedwire Funds
Service telephonically or through a Reserve Bank website in which
payments are entered manually. A commenter noted that implementation
costs incurred by a vendor may ultimately be passed on to a
participant's customers.
One commenter expressed concern that the proposal could impose
significant burdens on corporate end users. This commenter argued that
corporate end users should be permitted to (i) maintain their current
internal payment applications and (ii) rely on financial institutions
and service
[[Page 55602]]
providers to translate payment messages into ISO 20022 format.
Relatedly, another commenter expressed concern that the proposal lacks
guidelines concerning ``user to bank'' messages (i.e., messages between
depository institutions and their customers). The Reserve Banks' ISO
20022 implementation will establish guidelines for messages only
between the Reserve Banks and direct Fedwire Funds Service participants
(generally depository institutions). Accordingly, each Fedwire Funds
Service participant will need to determine how to exchange messages
with its customers. The Board notes that the ISO 20022 suite of payment
messages includes a number of customer-to-bank messages and that
Fedwire Funds Service participants could use these messages in their
interfaces with their customers, which would eliminate the need to
translate end users' payment message into ISO 20022 format.\4\
Similarly, as the Board noted in the 2018 Notice, Fedwire Funds Service
participants will need to determine, consistent with any legal
obligations, how to handle enhanced data that they receive, including
whether (and how) to provide such data to the next receiving bank in
the funds transfer or to the beneficiary. The Board acknowledges that
transitioning to the ISO 20022 message format may impose some
transition costs on Fedwire Funds Service participants and corporate
end-users, but believes the benefits of adoption, as discussed
elsewhere in this notice, significantly outweigh these costs.
---------------------------------------------------------------------------
\4\ For example, a corporate customer could send a payment order
to its bank using the Customer Credit Transfer Initiation (pain.001)
message and could request a reversal of a payment using the Customer
Payment Reversal (pain.007) message. For additional ISO 20022
payment messages, see https://www.iso20022.org/payments_messages.page. The Board has learned that several Fedwire
Funds Service participants already receive ISO 20022 messages from
their corporate customers and translate those messages into the
current proprietary Fedwire Funds Service format.
---------------------------------------------------------------------------
In addition to discussing the adoption of the ISO 20022 standard
and its impact on participants and service providers, commenters
provided feedback regarding the functionality of ISO 20022, suggesting
that (among other things) the Reserve Banks should expand the range of
data that Fedwire Funds Service participants will be able to include in
payment orders. One commenter suggested, for example, that the Reserve
Banks should implement ISO 20022 in a manner that allows a sender to
identify all persons that relate to the transaction for which the funds
transfer is being made (i.e., not just the parties included in the
payment portion of the transaction). The same commenter expressed
concern that the proposal would implement ISO 20022 in a manner that
matches, but does not improve upon, the current Fedwire Funds Service
message format.
Once the Reserve Banks fully implement ISO 20022, Fedwire Funds
Service participants will be able to send and receive ISO 20022
messages that contain additional and more detailed data than currently
available in the Fedwire Funds Service message format, including many
of the functionalities suggested by commenters. The Board believes
these enhanced data elements represent an improvement on the current
Fedwire Funds Service message format. New data fields in ISO 20022
messages will include:
[ssquf] New data elements for additional persons or entities
identified in payment messages (i.e., initiating party, two additional
previous instructing agents, two additional intermediary agents,
ultimate debtor, ultimate creditor)
[ssquf] New purpose code data element to help explain the business
purpose of the funds transfer
[ssquf] New data element to provide information about a bilateral
processing agreement
[ssquf] Longer lengths for certain elements (e.g., the name element
can be up to 140 characters)
[ssquf] Structured postal address data elements, including a
country code
[ssquf] Explicit data element to include a Legal Entity Identifier
for all legal entities in the funds transfer
[ssquf] New regulatory reporting data elements to provide
regulatory information (e.g., OFAC license) related to customer
transfers
The Board notes that the Reserve Banks sought input from the Format
Advisory Group \5\ on whether the Reserve Banks' adoption of the ISO
20022 standard should also include the ISO 20022 stand-alone remittance
message (remt.001),\6\ but the Format Advisory Group indicated that
there is currently no business case for the Fedwire Funds Service to
support that message.
---------------------------------------------------------------------------
\5\ The Format Advisory Group is jointly chaired by the Federal
Reserve Bank of New York and TCH and includes 18 global and regional
banks. Seventeen institutions are Fedwire Funds Service
participants, 10 of which are also CHIPS participants. One
institution is a participant in CHIPS only.
\6\ The ISO 20022 remt.001 message is a standalone nonvalue
message that includes the remittance details related to a payment
(e.g., invoice details). This message includes a reference to the
value message so that the receiver can reconcile the remt.001
message to the value message (e.g., pacs.008).
---------------------------------------------------------------------------
A commenter requested that Fedwire Funds Service participants
sending cross-border funds transfers be required to complete a country
code in the address component for the beneficiary. The Reserve Banks
will require the country code for the originator and beneficiary
elements when the structured format address option is used for domestic
or cross-border funds transfers.
One commenter suggested that the Reserve Banks should implement ISO
20022 in a way that better supports the inclusion of ERI. This
commenter asserted that the Reserve Banks should increase the size
permitted for the structured or unstructured elements for ERI,
emphasizing that it would be problematic for ERI elements to impose
size limitations. The Reserve Banks plan to support up to 140
characters for unstructured remittance information and up to 9,000
characters for structured ERI in accordance with the High Value Payment
Systems Plus (HVPS+) Group guidelines,\7\ which promote straight-
through processing by reducing the use of unstructured ``free text''
data and encouraging the use of structured data. The Reserve Banks will
reassess the business case for providing more than 9,000 characters for
structured ERI if actual usage by Fedwire Funds Service participants
increases over time.
---------------------------------------------------------------------------
\7\ The HVPS+ Group was convened by SWIFT in early 2016 to
develop a set of guidelines for ISO 20022 messages used by high-
value payment systems around the world. The Reserve Banks and TCH
have participated in the HVPS+ Group, and they have based their ISO
20022 implementation plans for the Fedwire Funds Service and CHIPS,
respectively, on the HVPS+ Group guidelines.
---------------------------------------------------------------------------
A commenter suggested that the Reserve Banks consider including
expanded character sets (e.g., Chinese characters) in the ISO 20022
implementation for the Fedwire Funds Service. During the planning phase
for the ISO 20022 migration, the Reserve Banks consulted with the
Format Advisory Group to determine whether to expand the character sets
for the Fedwire Funds Service. The Format Advisory Group recommended
that the Reserve Banks defer any decision to expand character sets,
noting that (i) the level of demand for expanded character sets is
uncertain and (ii) expanding character sets would be a significant
change that would impact other participant applications that interface
with participants' payment applications. In light of the uncertain
demand, the ISO 20022 implementation for the Fedwire Funds Service will
not include additional character sets at this time but
[[Page 55603]]
may consider including additional character sets in the future.
Another commenter noted that the proposal lacks specifications to
support an application program interface (API) to the proposed ISO
20022 messages. An API would allow a Fedwire Funds Service participant
to request certain information from the Fedwire Funds Service according
to a specific set of instructions (e.g., instructions to request an
account balance). Incorporating APIs into the Fedwire Funds Service ISO
20022 initiative would increase the scope of the project and extend the
migration timeline. Thus, APIs are outside the scope of the current ISO
20022 implementation plan but would be considered as a future
enhancement.
A few commenters raised more general issues related to the adoption
of the ISO 20022 standard. One commenter suggested that the Board work
to ensure that ISO 20022 does not disrupt the U.S. legal framework for
wire transfers. As the Board noted in the 2018 Notice, ISO 20022
employs terminology that differs in key respects from that used in U.S.
funds-transfer law, including Article 4A of the Uniform Commercial Code
(UCC) and subpart B of the Board's Regulation J.\8\ The Board amended
subpart B of Regulation J and related commentary to clarify that terms
used in financial messaging standards, such as ISO 20022, do not confer
or connote legal status or responsibilities.\9\ TCH also indicated in
its comment letter that it would include similar clarifications in the
CHIPS rules. As a result, the Board does not anticipate that the
adoption of ISO 20022 will disrupt the U.S. legal framework for wire
transfers.
---------------------------------------------------------------------------
\8\ 12 CFR part 210. Subpart B of Regulation J, which governs
funds transfers through the Fedwire Funds Service, generally
incorporates UCC Article 4A.
\9\ 12 CFR 210.25(e).
---------------------------------------------------------------------------
Finally, a commenter recommended that the Federal Reserve increase
its efforts to educate the financial industry and corporate end-users
regarding ISO 20022, expressing concern that small entities in
particular do not understand ISO 20022. As the proposal described in
detail, the Reserve Banks have engaged in extensive public outreach
regarding ISO 20022 by presenting at industry conferences; publishing
webinars; establishing websites to educate the public about ISO 20022;
establishing advisory groups that include banks, service providers,
software vendors, and other stakeholders to provide input on how to
implement ISO 20022 for the Fedwire Funds Service; and hosting in-
person workshops to provide detailed explanations of each phase of the
ISO 20022 implementation plan. The Reserve Banks will publish
additional webinars and hold additional in-person workshops before the
Fedwire Funds Service migrates to ISO 20022.
III. Proposed New Implementation Strategy for the ISO 20022 Standard
A. Summary of 2018 Notice Relating to Implementation Strategy
The 2018 Notice proposed that the Reserve Banks would transition
from the current Fedwire Funds Service message format to ISO 20022 in
three phases. In phase 1, the Reserve Banks would make certain changes
to the current Fedwire Funds Service message format to address existing
interoperability gaps with SWIFT's proprietary message format. Phase 1
would be targeted for completion by November 23, 2020. In phase 2, the
Reserve Banks would migrate Fedwire Funds Service participants in waves
to send and receive ISO 20022 messages that have elements and character
lengths that are comparable to the current Fedwire Funds Service
message format. In addition to this ``like-for-like'' implementation,
the Reserve Banks would also require Fedwire Funds Services
participants during phase 2 to test their ability to receive full ISO
20022 messages to prepare for full implementation of the ISO 20022
standard. Phase 2 would be targeted for completion from March 2022 to
August 2023. In phase 3, the Reserve Banks would fully implement ISO
20022 by enabling Fedwire Funds Service participants to send ISO 20022
messages that contain enhanced data. Phase 3 would be targeted for
completion by November 2023.
B. Public Comments Relating to Three-Phased Implementation Strategy
Some of the 17 comments the Board received on the 2018 Notice
addressed the proposed three-phased implementation strategy for the ISO
20022 standard. For example, one commenter suggested that phases 1, 2,
and 3 of the Fedwire Funds Service's transition to ISO 20022 could be
combined or shortened in various ways. The commenter stated that
combining phases 1 and 2 would allow users with an urgent need to adopt
ISO 20022 to do so sooner. The commenter alternatively suggested that
the Reserve Banks could combine phases 2 and 3, arguing that Fedwire
Funds Service participants would be able to mitigate resulting risks
because they would only be required to receive enhanced data in phase
3. As described below, the Board is proposing a revised, single-day
implementation strategy in lieu of the three-phased strategy that was
originally proposed. Additional comments received in response to the
2018 Notice are discussed in connection with various implementation-
related issues described below.
C. Developments Since the 2018 Notice
In September 2019, the Reserve Banks announced a pause in their
plans for the three-phased migration to the ISO 20022 messaging
standard in response to a formal request from the Payments Market
Practice Group (PMPG) to instead consider a single-day
implementation.\10\ Specifically, the PMPG asked the Reserve Banks and
other large-value payment system operators around the world to adopt a
common approach to implementing fully enhanced ISO 20022 messages to
reduce the risk and duration of cross-border interoperability issues.
The PMPG noted that there would be a high degree of readiness within
the cross-border payments industry for a single-day implementation of
ISO 20022 as a result of industry investments in response to SWIFT's
and Eurozone RTGS operators' ISO 20022 migration schedules.\11\ In
addition, the PMPG raised concerns about the potential operational
risks introduced by certain aspects of the phased implementation
approach, such as the need to truncate ISO 20022 message details.
Finally, the PMPG suggested that the elimination of a like-for-like
phase in a phased implementation approach would simplify implementation
requirements for both operators and payment system participants, create
a more consistent global operating model, and result in faster industry
adoption of the ISO 20022 message standard.\12\
---------------------------------------------------------------------------
\10\ See https://www.frbservices.org/news/press-releases/092319-fedwire-funds-migration-iso20022-messages.html. The PMPG is an
independent advisory group of payments experts that reports to the
Banking and Payments Committee of SWIFT's Board of Directors. PMPG
members represent global financial institution from Asia Pacific,
Europe, and North America.
\11\ At the time, SWIFT, Eurosytem's TARGET2, and EBA Clearing's
EURO1/STEP1 expected to complete their migrations to ISO 20022 by
November 2021, although they now expect to complete their migrations
in November 2022.
\12\ Subsequent to the PMPG request, Payments Canada announced
that beginning November 2022, it will implement a new closed user
group for Lynx participants to exchange ISO 20022 payment messages
to support cross-border interoperability and begin the Lynx
migration from SWIFT MT messages to ISO 20022 messages for all
Canadian wire transfer payments. Additionally, the Bank of England
announced it expects to complete its migration to fully enhanced ISO
20022 messages for the CHAPS system in February 2023.
---------------------------------------------------------------------------
Since the September 2019 announcement, the Reserve Banks have
[[Page 55604]]
been exploring a revised ISO 20022 implementation strategy that would
support a single-day implementation of fully enhanced ISO 20022
messages. In doing so, the Reserve Banks have engaged with industry
through the Format Advisory Group. In addition to discussing a
potential single-day implementation strategy for the Fedwire Funds
Service, these discussions have considered the potential cross-border
interoperability issues that could arise if the Reserve Banks and other
large-value payment system operators do not implement the ISO 20022
messaging standard by the time SWIFT enables its participants to send
ISO 20022 messages over its global network in 2022.
Based on this industry engagement, the Board is now proposing, and
seeking comment on, a single-day implementation strategy to migrate the
Fedwire Funds Service to the ISO 20022 messaging standard.
D. Revised Proposal for Migrating the Fedwire Funds Service to the ISO
20022 Standard on a Single Day
The Board is proposing that the Reserve Banks adopt the ISO 20022
message format on a single day rather than in three separate phases, as
previously proposed. As of the implementation date (i.e., the date on
which the Fedwire Funds Service is scheduled to migrate to ISO 20022),
all Fedwire Funds Service participants would be required to be able to
send and receive fully enhanced ISO 20022 messages and the proprietary
message format for the Fedwire Funds Service would no longer be
supported. The implementation date would be targeted for, and would be
no earlier than, November 2023.
The Board considered various issues in connection with the proposed
single-day implementation of ISO 20022 which are outlined in the
sections below.
1. Interoperability With Other Payment and Messaging Systems
In connection with the 2018 Notice, various commenters suggested
that the Reserve Banks should coordinate the implementation of ISO
20022 with CHIPS and SWIFT to ensure that the three systems remain
interoperable. Two commenters also suggested that Nacha adopt ISO 20022
for automated clearing house (ACH) payments.\13\
---------------------------------------------------------------------------
\13\ Nacha, whose membership consists of insured financial
institutions and regional payment associations, establishes network-
wide ACH rules through its Operating Rules & Guidelines.
---------------------------------------------------------------------------
a. Alignment With CHIPS
Five commenters suggested that the Reserve Banks and TCH should
align implementation of ISO 20022 for the Fedwire Funds Service and
CHIPS.\14\ As described in the 2018 Notice, the Reserve Banks and TCH
independently decided to pursue implementation of ISO 20022. The
Federal Reserve intends to align the timing of ISO 20022 implementation
for the Fedwire Funds Service with that of CHIPS to the extent possible
to maximize benefits for Federal Reserve customers that also use CHIPS.
In March 2021, TCH announced its intention to adopt the ISO 20022
message format for the CHIPS system on a single day in November 2023.
---------------------------------------------------------------------------
\14\ Two of these commenters also suggested that the Reserve
Banks and TCH should implement ISO 20022 in a manner that aligns
with the recommendations of the High Value Payment Systems Plus
(HVPS+) Group.
---------------------------------------------------------------------------
b. Alignment With SWIFT
In December 2018, SWIFT announced that it would migrate to ISO
20022 for payments and cash reporting statements beginning in 2021.
SWIFT subsequently postponed the migration to November 2022.\15\ Under
the SWIFT plan, beginning in November 2022, SWIFT will allow users to
send either the SWIFT MT format or ISO 20022 messages, but will require
all SWIFT users to receive ISO 20022 messages. For a SWIFT receiver
that has not yet migrated its internal processing systems to support
ISO 20022 messages, however, SWIFT will deliver to the receiver both an
ISO 20022 message and a SWIFT MT message that the SWIFT receiver can
use for internal processing.
---------------------------------------------------------------------------
\15\ For the announcement of SWIFT's November 2022 migration
date, see https://www.swift.com/standards/iso-20022/iso-20022-programme/timeline.
---------------------------------------------------------------------------
The Board recognizes that financial institutions may face cross-
border interoperability issues if SWIFT users migrate to ISO 20022
before the Reserve Banks implement ISO 20022. Specifically, in November
2022, when SWIFT users begin receiving ISO 20022 messages that need to
be settled via the Fedwire Funds Service, the users will need to map
the ISO 20022 data elements to the current proprietary Fedwire Funds
Service message format. However, the ISO 20022 message may contain new
data elements or have longer character lengths that are not supported
in the current proprietary message format of the Fedwire Funds Service.
To reduce the risk of data truncation, the Reserve Banks, in
cooperation with global banks, have developed a market practice to
ensure all ISO 20022 data can be carried in the Fedwire Funds Service
message format. Specifically, in November 2022, the Reserve Banks will
make minor changes to an existing 9,000-character field within the
current Fedwire Funds Service message format to create sufficient space
to include the full text of data-rich ISO 20022 messages.\16\ The
market practice, combined with Fedwire Funds Service message format
changes in November 2022, will reduce the risk of cross-border
interoperability issues during the period between SWIFT's
implementation of ISO 20022 and the Fedwire Funds Service's
implementation of ISO 20022.
---------------------------------------------------------------------------
\16\ TCH plans to implement a similar change to the CHIPS system
in November 2022.
---------------------------------------------------------------------------
c. Adoption of ISO 20022 for Instant Payments
ISO 20022 is being implemented globally as messaging standard for
real-time retail payment systems. The standard is used for TCH's Real
Time Payments Network and will be used for the Federal Reserve's
FedNow\SM\ Service, which is targeted for implementation in 2023. The
Reserve Banks are applying a holistic approach to implementing ISO
20022 across the different payment systems they operate by implementing
ISO 20022 consistent with the global standard and defined best
practices. The Reserve Banks will align the implementation of ISO 20022
for the FedNow Service and the Fedwire Funds Service to the greatest
extent possible, but where there are differences in functionality
between the services, there will be different ISO 20022 messages. For
example, to eliminate the need for Fedwire Funds Service participants
to receive new types of payment messages, the Fedwire Funds Service
will not adopt a request for information feature planned for the FedNow
Service. Furthermore, the Reserve Banks have collaborated with TCH to
optimize compatibility of the ISO 20022 messages for the two U.S.
instant payment services and the two U.S. high-value payment services
to benefit common users across the industry.
d. Adoption of ISO 20022 for ACH payments
Two commenters requested that the Board work with Nacha to ensure
that ACH payments also migrate to ISO 20022. The Board notes that Nacha
and the ACH operators (i.e., the Reserve Banks and TCH) have not yet
determined whether they will adopt the ISO 20022 message format for the
ACH
[[Page 55605]]
system. However, Nacha has developed an ISO 20022 Mapping Guide and
Tool to help financial institutions translate ISO 20022 messages into
the existing ACH format.\17\
---------------------------------------------------------------------------
\17\ See https://www.nacha.org/content/iso-20022-mapping-guide-tool.
---------------------------------------------------------------------------
e. Consolidated List of Industry Initiatives
A consolidated list of the industry initiatives mentioned above is
noted below. Fedwire Funds Service participants that also participate
in SWIFT and the high-value payment systems noted below and those that
plan to participate in the FedNow Service will also need to prepare for
these initiatives.
------------------------------------------------------------------------
Target date Description
------------------------------------------------------------------------
November 2022..................... [ssquf] SWIFT will allow its users
to begin sending ISO 20022 messages
and will require users to receive
ISO 20022 messages.
[ssquf] The Eurosystem and EBA
Clearing will migrate to ISO 20022
messages for the TARGET2 system and
EURO1/STEP1 system respectively on
a single day.
[ssquf] Payments Canada announced
that it will implement a new closed
user group for Lynx participants to
exchange ISO 20022 payment messages
to support cross-border
interoperability, and begin the
Lynx migration from SWIFT MT
messages to ISO 20022 messages for
all Canadian wire transfer
payments.
[ssquf] The Reserve Banks and TCH
will implement changes to the
proprietary message formats for the
Fedwire Funds Service and the CHIPS
system respectively to support ISO
20022 cross-border
interoperability.
February 2023..................... [ssquf] The Bank of England is
expected to migrate to fully
enhanced ISO 20022 messages for the
CHAPS system.
2023 (exact date to be announced [ssquf] The Reserve Banks expect to
later). launch the FedNow Service, which
will support ISO 20022 messages.
November 2023..................... [ssquf] TCH is expected to implement
ISO 20022 messages for the CHIPS
system on a single day.
November 2023 or later............ [ssquf] The Reserve Banks are
proposing to implement ISO 20022
messages for the Fedwire Funds
Service on a single day.
------------------------------------------------------------------------
2. Message Format Documentation
The Reserve Banks are using a restricted page on SWIFT's
MyStandards web-based application as a tool to store and share
documentation related to the ISO 20022 project with authorized Fedwire
Funds Service participants and software vendors.\18\ The Reserve Banks
will publish the final message format documents for the fully enhanced
ISO 20022 messages after the Board announces a final implementation
strategy. Within the MyStandards application, Fedwire Funds Service
participants and software vendors will be able to compare the ISO 20022
specifications for the Fedwire Funds Service with the ISO 20022
specifications for other payment systems to which they have access,
including the specifications for the FedNow Service.
---------------------------------------------------------------------------
\18\ For more information on MyStandards, see https://www.swift.com/our-solutions/compliance-and-shared-services/mystandards.
---------------------------------------------------------------------------
In response to the 2018 Notice, a commenter suggested that using
MyStandards could reduce competition for documentation-related services
and could be perceived as giving an unfair advantage to SWIFT, the
vendor of MyStandards. The Reserve Banks selected MyStandards to
maximize efficiency for the Reserve Banks and their customers, some of
which already use MyStandards for their own business needs or as
participants in other retail and large-value payment systems.\19\ The
Reserve Banks provide access to MyStandards free of charge.
---------------------------------------------------------------------------
\19\ In March 2021, the Reserve Banks published the ISO 20022
specifications for the FedNow Service on SWIFT's MyStandards web-
based application tool. The European Central Bank, EBA Clearing,
Bank of England, Payments Canada, and The Clearing House use
MyStandards to maintain their ISO 20022 message format
documentation.
---------------------------------------------------------------------------
The same commenter also asserted that software vendors should be
given direct access to the MyStandards service rather than gaining
access via a Fedwire Funds Service participant, arguing that direct
access would foster competition. Due to concerns about the sensitivity
of the information that might be stored in the MyStandards service, the
Reserve Banks will allow only Fedwire Funds Service participants,
software vendors, and service providers to access Fedwire Funds Service
documentation in the MyStandards service.\20\ The Reserve Banks have
sent communications to Fedwire Funds Service participants to obtain
contact information for software vendors so that the Reserve Banks can
contact those vendors directly. In addition, the Reserve Banks have
sent communications to known software vendors to provide them with
direct access to the documentation in the MyStandards service.
---------------------------------------------------------------------------
\20\ The Reserve Banks have posted on a Reserve Bank website a
list of software vendors that Fedwire Funds Service participants
have identified as needing access to Fedwire Funds Service message
documentation. See https://www.frbservices.org/resources/financial-services/wires/software-vendors.html.
---------------------------------------------------------------------------
3. Message Format Testing
To reduce the risks associated with a single-day implementation of
the ISO 20022 messages for the Fedwire Funds Service, the Reserve Banks
would require rigorous testing in three different environments.
Specifically, the Reserve Banks would enable authorized Fedwire Funds
Service participants and software vendors to use the Readiness Portal
feature within MyStandards to ensure that their ISO 20022 messages
conform to Fedwire Funds Service requirements. For example, the
Readiness Portal testing would help participants ensure that their ISO
20022 messages are properly formatted (e.g., include mandatory data
elements, adhere to required element lengths, use valid codes, and
contain valid characters). The Readiness Portal would provide
participants and software vendors an opportunity to perform advance
testing of their ISO 20022 messages and address any issues with their
ISO 20022 messages before performing functionality testing with the
Fedwire Funds Service in the Reserve Banks' depository institution
testing (DIT) environment and production environment.\21\
---------------------------------------------------------------------------
\21\ For more information on the DIT environment, see https://www.frbservices.org/financial-services/wires/testing/di-testing.html. For more information on the production environment,
see https://www.frbservices.org/financial-services/wires/testing/production-test.html.
---------------------------------------------------------------------------
[[Page 55606]]
The Reserve Banks would introduce a second DIT environment nine to
twelve months ahead of the implementation date to provide participants
a dedicated environment for testing ISO 20022.\22\ The Reserve Banks
would also provide opportunities for participants to conduct
coordinating testing in the second DIT environment so that they can
test their ability to send and receive ISO 20022 messages among each
other. Further, the Reserve Banks would provide opportunities for
participants to test their ISO 20022 messages in the production
environment on select Saturdays about two to three months prior to the
implementation date.
---------------------------------------------------------------------------
\22\ The current DIT environment will remain until the ISO 20022
implementation date to allow participants to test with the current
proprietary message format for the Fedwire Funds Service.
---------------------------------------------------------------------------
Finally, the Reserve Banks would require certain customers and
service providers to complete a separate test script in each of the
testing environments, including the MyStandards Readiness Portal, the
second DIT environment, and the production environment.\23\ The advance
testing in the MyStandards Readiness Portal should reduce the amount of
time needed to successfully complete the test script in the second DIT
and production environments.
---------------------------------------------------------------------------
\23\ This requirement would apply to all customers and service
providers that have their own FedLine Direct[supreg] connection to
the Fedwire Funds Service; customers that import 20 or more
transactions per day using the FedPayments Manager--Funds
application via the FedLine Advantage[supreg] solution; and select
customers that enter messages directly into the FedPayments
Manager--Funds application screens.
---------------------------------------------------------------------------
The Reserve Banks would publish a final testing plan including the
testing requirements for each testing environment after the Board
announces a final implementation strategy.
4. Temporary Backout Strategy Before the Migration to ISO 20022
If the Reserve Banks encounter significant problems activating ISO
20022 on the Saturday before the implementation date, the Reserve Banks
would have the ability to ``back out'' the ISO 20022 changes and return
to the legacy format temporarily. Fedwire Funds Service participants
would need to attest to their ability to back out their ISO 20022
changes when they conduct their production testing.
The backout strategy would only apply if the Reserve Banks
encounter a significant issue when activating the ISO 20022 changes
before the implementation date. The Reserve Banks would not invoke the
backout strategy if a Fedwire Funds Service participant experiences an
issue with an internal application. Rather, a participant would be able
to use the FedPayments[supreg] Manager--Funds application via the
FedLine Advantage[supreg] solution as a contingency alternative if it
encounters an issue with an internal payment application that cannot be
fixed before the implementation date.
5. Strategy for Addressing Technical Problems After the Migration to
ISO 20022
If the Reserve Banks encounter a significant issue on or after the
implementation date, the Reserve Banks would not be able to return to
the legacy format. Rather, the Reserve Banks would invoke a ``fix-in-
place'' strategy to address the issue. Such a fix-in-place strategy
would require the Reserve Banks to implement a software update to
address any issue as soon as the fix had been identified and fully
tested. This strategy is consistent with previous customer-facing
initiatives, and the Reserve Banks believe it would reduce complexity
and costs associated with the ISO 20022 initiative because the Reserve
Banks and Fedwire Funds Service participants would not need to retain
the ability to support both the new ISO 20022 format and the current
proprietary message format.
IV. Implementation of ISO 20022 and Expanded Operating Hours for the
Fedwire Funds Service and the National Settlement Service
The proposed adoption of ISO 20022 for the Fedwire Funds Service
should be viewed as part of a broader set of initiatives to expand and
enhance Federal Reserve payment services, including the development and
launch of the FedNow Service and the potential expansion of operating
hours for the Fedwire Funds Service and the National Settlement Service
(NSS).\24\ The Board recognizes that these initiatives have
implications for the financial services industry, potentially
necessitating changes to operational processes and technology while
also creating new business and service opportunities. This notice
reflects the Board's view that the migration to ISO 20022 should
proceed in line with the global migration to ISO 20022.
---------------------------------------------------------------------------
\24\ Recent enhancements to Federal Reserve payment services
include the expansion of Fedwire Funds Service and NSS operating
hours, effective March 8, 2021, to support an additional settlement
window for same-day automated clearinghouse (ACH) payments. 84 FR
71940 (Dec. 30, 2019).
---------------------------------------------------------------------------
Regarding expanding the operating hours of the Fedwire Funds
Service and the NSS, the Board is actively considering the risk,
operational, and policy implications of expanding the operating hours
of those services up to 24x7x365 and is analyzing potential operational
options, particularly as the Reserve Banks develop and prepare to
launch the FedNow Service.\25\ In considering a potential expansion of
operating hours, the Federal Reserve is committed to proposing a path
that supports a safe, efficient, and resilient payment system and sets
a strong foundation for the future in light of the increasingly round-
the-clock nature of commerce and financial market activity in a global
economy.\26\ The Board expects to issue a separate Federal Register
notice in the next year to seek input on a proposal to expand Fedwire
Funds Service and NSS operating hours up to 24x7x365.
---------------------------------------------------------------------------
\25\ As originally announced by the Board in 2019, the Federal
Reserve has been exploring an expansion of Fedwire Funds Service and
NSS operating hours, up to 24x7x365, to support a wide range of
payment activities, including liquidity management in private-sector
RTGS services for instant payments. See 84 FR 39297 (Aug. 9, 2019).
\26\ Consistent with these considerations, past and recent
industry input have supported 24x7x365 operations as a potentially
important target for the Fedwire Funds Service and the NSS. See
Payments Risk Committee: Fedwire Expanded Hours Whitepaper,
available at https://www.newyorkfed.org/medialibrary/microsites/prc/files/2021/prc-fedwire-expanded-hours-considerations-white-paper.
---------------------------------------------------------------------------
V. Request for Comment
The Board requests public comment on all aspects of its proposal to
migrate the Fedwire Funds Service to the ISO 20022 message format on a
single day, as described in this notice, rather than in three separate
implementation phases as proposed in the 2018 Notice. In particular,
the Board requests comment on the following questions:
1. Do you support the single-day implementation strategy? If not,
what implementation strategy would be optimal?
2. Should the Reserve Banks implement ISO 20022 for the Fedwire
Funds Service in November 2023? If not, what would be your preferred
implementation date? Please provide the rationale behind your
preference.
3. Should the Reserve Banks and TCH implement ISO 20022 for the
Fedwire Funds Service and CHIPS on the same day?
4. Do you have any resource constraints or other challenges that
would impact your ability to prepare for the implementation of ISO
20022 for the Fedwire Funds Service? (For example, some Fedwire Funds
Service participants and software vendors may also be preparing for the
ISO 20022 implementations for SWIFT and other payment system operators,
which begin in November 2022, and the Reserve
[[Page 55607]]
Banks' launch of the FedNow Service in 2023.)
5. Do you have any concerns about the Reserve Banks' proposed
testing strategy and requirements?
6. How much time would you need to test your ISO 20022 messages in
the MyStandards Readiness Portal before testing in the new second DIT
environment?
7. Would nine months of testing ISO 20022 messages in the new
second DIT environment be sufficient? If not, what is the minimum
amount of testing you would require in the second DIT environment
before the ISO 20022 implementation date?
8. Do you have any concerns about (i) proposed backout strategy for
the ISO 20022 changes on the Saturday before the implementation date or
(ii) the proposed fix-in-place strategy after on or after the
implementation date?
VI. Competitive Impact Analysis
The Board conducts a competitive impact analysis when it considers
a rule or policy change that may have a substantial effect on payment
system participants. Specifically, the Board determines whether there
would be a direct or material adverse effect on the ability of other
service providers to compete with the Federal Reserve due to differing
legal powers or due to the Federal Reserve's dominant market position
deriving from such legal differences.\27\
---------------------------------------------------------------------------
\27\ See http://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm.
---------------------------------------------------------------------------
The Board explained in the 2018 Notice that it does not believe
that adopting ISO 20022 for the Fedwire Funds Service would have an
adverse impact on other service providers. The current proprietary
message format for the Fedwire Funds Service is interoperable with the
proprietary message format for the CHIPS system. The Reserve Banks have
worked with TCH on plans to align ISO 20022 implementation for the
Fedwire Funds Service and CHIPS where possible and will continue to do
so; the Reserve Banks and TCH have previously indicated that such
coordination will benefit their common customers.
TCH submitted a comment on the 2018 Notice in which it agreed that
adopting ISO 20022 for the Fedwire Funds Service will not have an
adverse effect on TCH's ability to compete with the Fedwire Funds
Service assuming that there are no significant differences in (i) how
the applicable legal frameworks for CHIPS and the Fedwire Funds Service
address the legal issues created by the adoption of ISO 20022 and (ii)
the regulatory and compliance expectations for CHIPS and Fedwire Funds
Service payments. As described above, the Board has amended Regulation
J to ensure that adopting ISO 20022 does not affect the legal framework
for Fedwire Funds Service payments. TCH also indicated in its comment
letter that it would include similar clarifications in the CHIPS rules.
Given that the Reserve Banks and TCH plan to continue collaborating on
their respective ISO 20022 plans for the Fedwire Funds Service and
CHIPS, the Board does not believe that implementing ISO 20022 will
result in different regulatory or compliance expectations for CHIPS
funds transfers relative to Fedwire Funds Service funds transfers.
By order of the Board of Governors of the Federal Reserve
System, September 30, 2021.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2021-21801 Filed 10-5-21; 8:45 am]
BILLING CODE P