[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]


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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.

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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\
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    \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.
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    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.
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    \2\ 83 FR 31391 (July 5, 2018).
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    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\
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    \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.
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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.
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    \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.
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    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.
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    \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).
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    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.
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    \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.
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    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.
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    \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).
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    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\
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    \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.
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    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\
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    \13\ Nacha, whose membership consists of insured financial 
institutions and regional payment associations, establishes network-
wide ACH rules through its Operating Rules & Guidelines.
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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.
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    \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.
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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.
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    \15\ For the announcement of SWIFT's November 2022 migration 
date, see https://www.swift.com/standards/iso-20022/iso-20022-programme/timeline.
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    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.
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    \16\ TCH plans to implement a similar change to the CHIPS system 
in November 2022.
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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\
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    \17\ See https://www.nacha.org/content/iso-20022-mapping-guide-tool.
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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
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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.
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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.
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    \18\ For more information on MyStandards, see https://www.swift.com/our-solutions/compliance-and-shared-services/mystandards.
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    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.
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    \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.
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    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.
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    \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.
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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\
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    \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.

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[[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.
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    \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.
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    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.
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    \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.
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    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.
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    \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).
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    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.
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    \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.
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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\
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    \27\ See http://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm.
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    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