Standards

Standards MT Release 2021

Discussion paper & Meeting Minutes

Payments

Distribution: Payments Maintenance Working Group

Author: Tinne Verschueren
Date Issued: September 2020
Meeting Date: 18 August 2020
Standards MT Release November 2021

Table of Contents

1 Introduction ......................................................................................................................... 3

2 Overview of User Change requests .................................................................................. 4

2.1 CR 001652: Modify the Scope Statement and Market Practice description for Direct
and Cover messages .................................................................................................. 4

3 Accepted changes, pending implementation in SR 2021 ............................................... 7

4 Other information item: Impact on MT linked to the ISO 20022 Programme ................ 8

2 MWG Meeting and Minutes SR 2021


1 Introduction
The PMWG members:
Mr. Laurent Lafeuillade, Société Générale
Mr. Christopher Brown, RBS
Ms. Yan Zhang
Mr. Michael Mangieri, Wells Fargo
Ms. Elena Barabanova, VTB bank
Ms. Celia Ardyasa,
Commonwealth Bank of Australia
Mr. Martin Walder, SIX
Mr. Geert Van Antwerpen, KBC
Mr; Stephan Levieux, SWIFT National User
Group Chair
Mr. Rene Beike, Commerzbank
Represented by Paula Roels in the meeting
Ms. Gina Sellitto, Federal Reserve Bank of
New York
Mr.Matej Writzl, European Central Bank
August 2020
Standards MT Release November 2021
Representing:
French SWIFT User Group
U.K. SWIFT User Group
China SWIFT User Group
U.S. SWIFT User Group
Russian SWIFT User Group
Australian SWIFT User Group
Swiss SWIFT User Group
Belgian SWIFT User Group
Hong Kong SWIFT User Group
German SWIFT User Group
Federal Reserve Bank (Observer)
European Central Bank (Observer)
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Standards MT Release November 2021

2 Overview of User Change requests

2.1 CR 001652: Modify the Scope Statement and
Market Practice description for Direct and Cover
messages
Origin of request

Requesting Group: Payment Market Practice Group (PMPG)

Sponsors

PMPG

Message type(s) impacted

MT 103

Complies with regulation

None
Business impact of this request

LOW - This is only a change to the UHB and does not impact any message or field
specifications
Commitment to implement the change

Not provided

Business context

In 2019 the international Commercial Court in Singapore issued a judgment against a defendant
based on the existing documentation of the scope and usage guidelines of the direct and cover
method that seems to go against the market practice to view the direct and cover message as a
transaction comprised out of two messages. The court ruled that based on the wording in the
UHB the execution of the MT103 seemed not conditional on the receipt of the cover message.
The industry will benefit from clarity in the UHB.

The wording in the UHB on page 4 of the MT 103 Single Customer Credit Transfer should
reflect that the execution of the direct message is conditional on the settlement of the cover
transactions and that processing the direct message without receiving the cover exposes the
beneficiary bank to credit risk.
Nature of change

(Please check SWIFT comment)

1. Add to MT 103 Scope (page 4 of the MT 103 Single Customer Credit Transfer):
If the MT103 is not used as a serial payment but in a direct and cover payment flow the
cover message becomes part of the overall payment instruction and the execution of
the MT103 becomes now conditional on the receipt of the cover message (MT202 COV
or MT205 COV).

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 Standards MT Release November 2021

In the gpi context direct and cover (MT202 COV/MT205 COV) carry the same UETR to
evidence this unity.

2. Add to the MT 103 Market Practice Rules (page 13 of the of the MT 103 Single
Customer Credit Transfer):
After "As indicated in the MT 103 Guidelines, when an MT 103 is sent using the cover
method, an MT 202 COV message must be sent to cover the transfer."
Add the sentence:
" MT103 and MT202 COV/MT205COV become part of the same transaction."

Where an inward MT 202 COV results in an onward MT 205 COV, the Unique End-to-end
Transaction Reference (UETR) of the inward message must be passed, unchanged, in field 121
in the user header block of the onward message.
Examples

Not provided.

SWIFT Comment
The PMWG members are asked to check if the proposed scope change has impact on the
current use in the industry.
Should the standard really make the execution ‘conditional’? When the market practice allows to
pay out before receiving the cover, as long as the beneficiary institution accepts to take the (risk)
responsibility.
If the PMWG is in favour of a scope update, wording must be fine-tuned. Receiver of MT 103 is
receiver of the covered funds, not of the cover message (MT 202 COV/MT 205 COV).

The standard illustration for the second part of the nature of change is indicated below:

Working Group Meeting

Discussion

SWIFT highlighted in attached summary the existing information in the UHB for MT 103 referring
to practice and requirements on the cover method.

August 2020 5
Standards MT Release November 2021

CR1652_UHB_Info_S
ummary.docx

It was questioned if the group sees a need to just restructure/summarise some of this
information in the scope or if there really must be a scope change to include conditionality.
UK indicated that they are unclear if proposed scope update would have had an impact on the
outcome of the Singapore case or not and would then have impact on their current operations.
Several PMWG countries confirmed the practice of awaiting cover before paying out the
beneficiary, but it was nevertheless stressed that the use case to pay out before receiving cover
is happening (subject in risk policy as indicated in the market practice rules). Germany therefore
pointed out that they see a high impact of the proposed scope update including the introduction
of operational risk in addition to the credit risk, and therefore see a need for a legal due
diligence. Further questioning, whether there still will be a use case for the cover method, if the
processing becomes conditional on the receipt of the cover prior to crediting the beneficiary. The
cover message then becomes an equally binding part of the transaction.
Russia suggested to rephrase the proposed scope update and not to indicate message types as
not necessarily SWIFT messages are used for cover.
The US indicated that they expect that this will at least reduce the number of cover payments
and they are not comfortable with the “Conditional” wording. Suggestion was to use wording like
“The execution of the MT103 becomes at the discretion of the creditor agent prior to receiving
the cover.”
Australia indicated that they are uncomfortable with the wording “now conditional”, as they are
largely a recipient of direct-cover instructions (due to the time zone) and concern is this wording
will constrain banks from paying MT103 prior to receiving cover and therefore have negative
impact on beneficiaries.
There was a clear request from different countries to have the SWIFT legal department’s opinion
on the change request. After the Singapore court case there was no documentation issue
expressed. SWIFT Standards indicated that it is not clearly framed what the exact question is
the community would like SWIFT Legal to answer. Input from the PMWG (legal departments
from banks in their respective community) and PMPG is needed to frame the exact question(s).
Due to the arguments given in the discussion, the PMWG members that initially leaned towards
accepting the proposed change, confirmed that the community impact is not yet clear and needs
further analysis before considering.
Question was raised on the urgency of the change request in SR 2021. None of PMWG
members saw an urgent need to solve this in SR 2021 and recommended a detailed analysis
involving PMWG, SWIFT and PMPG for SR 2022. PMPG and PMWG members are also asked
to provide SWIFT the exact legal questions they have.

Decision

Postponed – further work needed on business context and nature of change, detailing the legal
and market practice impact.

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 Standards MT Release November 2021

3 Accepted changes, pending

implementation in SR 2021
In recognition of the operational stresses that the Covid-19 pandemic is putting on the global
financial community, SWIFT decided to limit SR 2020 implementation to only changes in the MT
Category 5. Accepted MT Payments change requests will be implemented in SR 2021.
Full details on changes pending implementation in SR 2021 are available as Advance Information
for Standards MT Release 2021.

Working Group Meeting

Discussion

There was a request for SWIFT to provide statistics on current use of option F in field 50 and
field 59.
This could help to understand the impact of changing network validation of option F in SR 2021
and see how community is progressing (or whether they are waiting for ISO 20022).
Below the evolution of 50F and 59F usage in the period June 2018 – July 2020.

MT 103
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Jul-18

Jul-19

Jul-20
Jun-18

Jun-19

Jun-20
Nov-18

Nov-19
Apr-19
May-19

Apr-20
May-20
Aug-18

Dec-18

Aug-19

Dec-19
Sep-18

Jan-19
Feb-19
Mar-19

Sep-19

Jan-20
Feb-20
Mar-20
Oct-18

Oct-19

50F 59F

For July 2020 this means the following percentages

MT 103:

50A 50F 50K 59A 59F 59

0.99% 15.74% 83.27% 0.93% 7.23% 91.84%
MT 103 STP:

50A 50F 50K 59A 59F 59

0.37% 30.69% 68.94% 0.70% 10.11% 89.19%

August 2020 7
Standards MT Release November 2021

4 Other information item: Impact on MT

linked to the ISO 20022 Programme
In September 2018, the SWIFT Board approved plans to facilitate a community migration of cross-
border payments and cash reporting traffic from the MT standard to ISO 20022. At its March 2020
meeting the SWIFT Board endorsed a new strategy supported by an evolution of SWIFT’s
technology platform. The new strategy and vision aims to support the community in its move from
MT to ISO 20022 for cross-border payments and cash reporting starting November 2022 towards
November 2025, so that the industry as a whole can benefit from richer, better quality data end-to-
end and the advantages it brings for customer service, innovation and compliance.
The Cross Border Payments and Reporting Plus (CBPR+) group, representing the 17 Payments
Market Practice Group (PMPG) communities, meets on a bi-monthly basis to develop a core set of
usage guidelines for ISO 20022 payments and cash reporting messages in the many-to-many
cross-border space. They published usage guidelines, samples and a user handbook, which are
publicly available on MyStandards and can already be tested in the Readiness Portal.
The group also helps SWIFT to define governance procedures for the maintenance of the
guidelines, and validates standardised rules for translation from ISO 20022 to MT and vice versa.
Translation rules are also accessible through the CBPR+ landing page.
Conversion from MX to MT comes with the risk of data truncation/loss at the price of operational
efficiency, customer satisfaction and efficient transaction surveillance. The simplest way to avoid
interoperability issues due to mapping between different formats is to maintain the ISO 20022
format through the entire payment chain. However many banks will not yet be ISO 20022 enabled
from the start, so will be confronted with having to leverage the SWIFT Translation service as
receiver of a SWIFT message. Expectation is that the ones most likely to be confronted with this,
are not the ones involved in CBPR+ discussions or testing today on MyStandards.
There is a clear request to start documenting potential impact on MT users to make them aware
and familiarise themselves with translation output like extra codes to categorise information,
truncation mark, another way to identify return/rejects, etc. SWIFT is hesitating to include such
information in the Standards Release Guide (SRG) or regular MT Category books as this
information is not intended for transactions initiated in MT. Information is also not intended for the
banks that have decided not to invest in MT messages anymore and committed to be early ISO
20022 adopters in 2022 (or earlier). Information is targeted towards those banks not yet able to
process ISO 20022 message during coexistence (expectation is this also involved banks in the
countries represented by the PMWG members). These cases will be quite common at the start, but
should become less frequent along the global migration to ISO 20022.
To increase community awareness of the details, SWIFT proposes to make the information
available in the ‘Usage Guidelines book’ for Standards MT Release November 2021, publication
planned in July 2021. In the past, any significant additional or changed information in this document
involved PMWG discussion and approval. SWIFT therefore invites all interested PMWG and
CBPR+ members to participate in the creation and review cycle of this document (Q1 2021).

Working Group Meeting

Discussion

The PMWG supports to have this information published in the UHB and supports the proposal to
include as of July 2021 in the Usage Guidelines book. Russia commented that they see the risk
of vendors and back office then not incorporating this information or charge extra for it if it is not
part of SRG. SWIFT indicated that it is expected that banks and vendors act in accordance to

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 Standards MT Release November 2021

the support they provide on reject/return guidelines which are documented in the Usage
Guideline book and referenced on MT message level for field 72. The group proposed to include
as of SRG 2022 a reference to this new section in the Usage Guidelines book. Vendors and
banks will need to take this into account for their ISO 20022 migration strategy. If there is strong
commitment to be early adopters, there is no need to incorporate the MT impact.

August 2020 9
Standards MT Release November 2021

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10 MWG Meeting and Minutes SR 2021