How the LEI Can Assist Monetary Establishments ‘Deal with’ a Rising Problem in ISO 20022

How the LEI Can Help Financial Institutions ‘Address’ a Growing Challenge in ISO 20022The huge complexity and inconsistency of handle codecs globally presents vital challenges for monetary establishments. On this weblog, GLEIF’s Head of Enterprise Operations, Clare Rowley, explores why the flexibility to map related handle fields from Authorized Entity Identifier (LEI) reference knowledge into the ISO 20022 messaging format is a strong technique of enhancing knowledge high quality, serving to to bolster the worldwide struggle in opposition to monetary crime and promote quicker, cheaper, and extra clear and inclusive cross-border transactions.

Addresses are foundational to the worldwide financial system. As famous by the Common Postal Union, “addresses type an necessary a part of the fundamental info wanted to make sure communication (each digital and bodily) between people, governments, and organizations.”

Given the basic function in enabling reputable entry to international commerce, incorrect, incomplete, or incongruous handle info is commonly seen as a ‘purple flag’ signaling nefarious exercise inside cross-border funds. The Monetary Motion Job Drive (FATF) Suggestions, which set out a complete and constant framework of measures to fight cash laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction, make this clear. Particularly, FATF Suggestion 16 goals to make sure that primary info (together with handle) on the originator and beneficiary of wire transfers is instantly out there and included throughout the fee message.

Deal with codecs and fee messages

But the inclusion of handle info inside a fee message, the place each additional byte will increase prices and reduces velocity, presents specific and distinctive challenges. Deal with buildings are wildly inconsistent throughout nations and jurisdictions and may be unfathomably complicated, given the huge array of potential mixtures. Cross-border funds compound this complexity. These transactions usually contain organizations with addresses in several languages, codecs, and colloquial kinds.

In a bid to accommodate, fee messaging requirements have favored character-limited free textual content traces or open fields for handle info. Whereas this strategy affords a level of flexibility (to account for the inherent variability), it additionally resists automation and thus inhibits straight-through processing (STP) as a result of handbook intervention is commonly required.

The ISO 20022 messaging commonplace goals to resolve this drawback via the introduction of extremely structured, discrete, character-limited components for particular handle info, reflecting a broader drive for extra constant and structured knowledge in fee processing to advertise better interoperability in cross-border funds and past.

As of as we speak, the next handle fields have been outlined inside ISO 20022:

  • Deal with Kind
  • Deal with Line
  • Division
  • Sub Division
  • Road Identify
  • Constructing Quantity
  • Constructing Identify
  • Ground
  • Publish Field
  • Room
  • Postcode
  • City Identify
  • City Location Identify
  • District Identify
  • Nation Sub Division
  • Nation

Whereas such extremely specified handle buildings are undoubtedly helpful in some home use circumstances the place, for instance, entities share the identical handle codecs and language, cross-border funds reveal limitations.

That is hardly shocking; it might be virtually unimaginable to supply standardized fields for each conceivable variation in bodily handle buildings globally. To take one real-world instance, an entity whose handle is listed because the third ground of a constructing, inside a golf course, near a enterprise park, close to a hoop street. Equally, what’s the sensible, scalable answer for jurisdictions the place avenue names are unusual and addresses should be described when it comes to proximity to native landmarks (i.e. 75 meters north and 50 meters east of a Church)? Add in the necessity to parse completely different languages and writing techniques, and it’s obvious that completely different organizations will not be going to interpret addresses the identical means.

Mapping the LEI to ISO 20022

Relatively than add additional structured fields in response to outliers (which stand to solely contribute to additional complexity), overcoming this drawback requires a standard, globally constant start line. That is very true for the creditor handle knowledge info in cross-border fee transactions. Whereas debtor handle info may be sourced from the debtor agent’s KYC grasp data, the debtor interpretation of the creditor handle into the ISO 20022 format is acknowledged as being ‘problematic’.

Fortunately, such a standard, globally constant start line for handle info already exists throughout the Authorized Entity Identifier (LEI). The LEI is a 20-character, alpha-numeric code that connects to key reference knowledge, together with handle info, that allows clear and distinctive identification of all entities taking part in a monetary transaction.

Compared to the extremely structured ISO 20022 handle format, the LEI is extra streamlined and minimally structured to account for the numerous variability and suppleness. That is notably necessary within the context of cross-border funds, the place variations in handle format are assured. Whereas because of this the format of the structured handle throughout the LEI doesn’t match precisely the format of the structured handle inside an ISO 20022 fee message, the LEI Index can be utilized to map LEI handle knowledge into the ISO 20022 format.

Put merely, the LEI handle info must be thought-about compliant with ISO 20022, and related handle fields may be retrieved from the LEI reference knowledge in an automatic method to cut back ambiguity and allow STP.

GLEIF gives this mapping right here and highlights the chance for monetary establishments to cut back the complexity of structuring beneficiary buyer info by leveraging the LEI because the organizational identifier for the beneficiary. This can “cut back the contact factors and impression on shoppers, optimize sources and investments whereas enabling the financial institution to supply vital enchancment in shopper expertise.”

GLEIF has additionally obtained direct business suggestions from monetary establishments flagging that it might be useful and logical to leverage the LEI reference knowledge to fulfill ISO 20022 necessities on buyer’s handle for the reason that LEI is necessary for many of those messages.

Supporting the worldwide struggle in opposition to monetary crime

The flexibility to map LEI handle knowledge into the ISO 20022 format has necessary implications. The challenges of handle validation are emblematic of an more and more urgent want to enhance knowledge high quality to bolster the worldwide struggle in opposition to monetary crime. Undertaking Aurora – an evaluation by the Financial institution of Worldwide Settlements (BIS) Innovation Hub – recognized ‘knowledge high quality and standardization of the info identifiers and fields’ contained inside fee messages as key elements. This echoes the findings of the FATF, which has flagged data-sharing, knowledge standardization, and superior analytics as underpinning efficient anti-money laundering (AML) and counter-terrorist financing (CTF) initiatives throughout borders.

Given this directional pattern, leveraging the LEI to beat challenges in decoding handle info stands to change into a strong approach to align with rising regulation. Wanting extra broadly, the LEI affords distinctive advantages to assist globally standardized, light-weight, environment friendly fee messages that may be absolutely automated, serving to to appreciate the promise of quicker, cheaper, and extra clear and inclusive cross-border transactions.

Because of this, GLEIF has engaged extensively with varied stakeholder teams throughout the business on the Financial institution for Worldwide Settlements’ Committee on Funds and Market Infrastructures (CPMI) session on ISO 20022 harmonization necessities, advocating that the LEI be launched because the identifier of the debtor/creditor in fee messages and be allotted the identical standing because the Enterprise Identifier Code (BIC) concerning the substitution of identify and postal handle.

GLEIF has additionally highlighted an unmissable alternative to think about the usage of the LEI within the deliberate evaluate of FATF Suggestion 16. GLEIF posits that the place the originator or beneficiary is a authorized entity, a belief, or some other group that has authorized capability underneath nationwide regulation, the LEI must be included throughout the info accompanying the qualifying wire switch.


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