The ISO 20022 financial messaging standard began with the ambition of creating a common protocol for the entire financial services industry. After several years of effort, the standard has evolved into what promises to be a common business model that is flexible enough to incorporate current industry standard protocols, including FIX.
The story of the Tower of Babel tells of the effort to build a tower to the heavens. To stop the endeavour, God is said to have made each worker speak in their own tongue. Tellingly, without a common language, the tower never reached the heavens. Esperanto, on the other hand, was invented in the late 1800s with the goal of creating a common international language. Today, while Esperanto still has devoted speakers around the world, it never gained – or maintained – popular support.
Efforts at developing a common financial messaging protocol have faced similar challenges: either too many different languages, or only one which has failed to gain widespread appeal.
An alternative approach – a middle road – is emerging within the International Organization for Standards (ISO). In June 2008, it was agreed that, where a strong business case was identified, the ISO 20022 financial messaging standard could support a domain specific syntax, such as FIX.
The relationship between ISO financial messaging standards and FIX is not new. Previous cooperation between SWIFT and FIX Protocol Ltd resulted in reverse engineering the FIX 4.3 pre-trade and trade messages into the ISO 20022 model. When concerns were raised that the industry perceived that the FIX message syntax would be rendered obsolete by ISO 20022 XML syntax, which was never the intention, FPL reduced its participation in the ISO 20022 process, but never fully abandoned the effort. With renewed and improved cooperation between FIX Protocol Ltd and SWIFT, the FIX 5.0 version underwent similar reverse engineering to ensure its on-going relevance within the ISO 20022 model.
XML and the proliferation of messaging standards
The evolution of messaging standards demonstrates the challenges faced by ISO in creating a messaging standard that included a syntax that was both robust and flexible enough to gain and maintain industry-wide support.
Created during the 1990s, and based on an early document markup standard SGML, the goal of XML was to create a format that could be used across a number of different applications. Its simple, self-describing format and assumed pervasiveness led to XML quickly being used as a messaging syntax by several financial organizations. In quick succession, several variations sprung up, including XBRL, FIXML, RIXML, MDDL and FpML.
In response to this growth and the onslaught on XML’s perceived dominance, a new initiative emerged, aimed at unifying various standards, (including emerging XML standards), into a common standard with a common XML syntax. It was to be known as ISO 20022.
One of the key drivers for this convergence within the securities banking segment came from the Global Straight Through Processing Association (GSTPA). GSTPA had planned to base its messaging standard on the planned ISO 20022 XML messaging standard. In the spirit of convergence and due to XML’s dominance, the FIX community, with SWIFT’s assistance, reverse engineered the pre-trade and trade messages from FIX 4.3 into the ISO 20022 model. The burst of the internet bubble coincided with the demise of GSTPA, while the information technology view that XML would be the only message syntax also waned, thus slowing momentum for convergence.
A standard for managing a messaging standard
ISO 20022 is not a traditional messaging standard. Rather it defines a standard for the processes for creation and maintenance of the standard. This is an important evolution and follows the incorporation of process methodology standardization within ISO, such as the ISO 9000 and ISO 14000 quality process standards, and the realization that message syntax itself will evolve over time.
The ISO 7775 standard was primarily concerned with the standardization of message syntax used on the SWIFT network. ISO 15022 based on ISO 7775 and SWIFT’s proprietary messages was an initial step away from this methodology and laid the groundwork for ISO 20022. As a result SWIFT largely dominated these standards. With the aim of unifying disparate standards across the financial services, ISO 20022 was officially launched and required a broader governance model.
Single model with multiple syntax
The ISO 20022 standard is divided into five parts. Unusually, parts three to five cover technical specifications, which are not subject to the rigorous requirements for approval needed for international standards.
This, the initiators of 20022 felt, would allow the messaging syntax and modeling techniques to evolve more easily in line with market developments. This foresight became very important when different segments of the financial services business began to realize that a single message syntax was not only undesirable, but could potentially have a negative impact in certain business areas.
SWIFT and FPL, supported by VISA International and FpML, submitted a proposal to the ISO 20022 Registration Management Group (RMG) to include support for alternative message syntax, with an eye towards interoperability between syntaxes.
The recommendation on interoperability proposed that domain specific syntax could be specified as part of business justifications. The request would need to include specific justification for the domain specific syntax. The submitter requesting the domain specific syntax is also required to demonstrate translation between the ISO 20022 model and the alternative syntax. Support for domain specific syntax was approved by the RMG in June 2008.
FPL and SWIFT recently submitted jointly the first proposal for FIX as a domain specific syntax in the pre-trade and trade segments of the securities processing life cycle.
Roadmap for the journey
At the same time as SWIFT and FPL were working to address support for multiple syntax, HSBC suggested that the securities sector construct an Investment Roadmap to inform standards adopters which message syntax was appropriate by asset class and portion of the trade processing life cycle. This effort was joined by FpML and ISITC and will soon add XBRL.
One of FPL's primary motivations in re-engaging in the ISO 20022 process was to ensure that FIX and the FIX syntaxes are seen as long-term strategic directions for the financial industry. But to view FPL's participation as being only one of contributing and codifying the FIX standard is too parochial. FPL participants in the ISO 20022 process and the reverse engineering exercise have already encountered modeling artifacts in the ISO 20022 model that can be incorporated into FIX in the future. Not only do technical benefits exist, there are also technical business modeling practices and standards governance practices used within ISO 20022 that can greatly benefit the FIX community.
International standards have a significant impact both at a political and commercial level. At their best they provide access to best practices, elimination of friction in commerce and higher quality. At their worst they can serve special interests, can be technically inferior and even irrelevant. Because the ISO organization, similar to FIX Protocol, is a voluntary organization, the quality of standards produced is directly tied to participation.
The ISO 20022 standard not only defines a messaging standard, it provides a model of financial services business processes and defines a process for managing the evolution of the standard in an environment that promotes open participation and balanced industry governance.
While SWIFT continues to play a critical role in the ISO 20022 standard, the overall structure aims to promote wide industry participation in the maintenance and evolution of the standard.
FPL continues to be represented within the ISO financial services standards and, by doing so, helps to ensure that these standards serve the interests of not just the FIX community, but the overall financial services industry.
The contributors to the ISO standards, with leadership from SWIFT and FIX and others, have chosen a middle way between the two extremes which bodes well for the future of the ISO 20022 financial messaging standard and the financial services industry.