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The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

A question of semantics

It has been all go on the standards front this month, what with the release of the “industry roadmap”, ongoing discussions on the future of the business entity identifier (BEI) and a veritable cartload of progress updates from the EDM Council.

The buzzword of the moment seems to have quietly become “interoperability”, rather than “convergence”, as under the roadmap plan the three key standards bodies have agreed to work on the transition points between FIX, FpML and ISO standards rather than forcing the industry to move to a whole new messaging standard. In fact, the industry roadmap is a far cry from Swift’s original push in 2001 to get all other standards to fall in line under the banner of ISO 15022 and, as such, it may represent the best chance the industry has at dealing with the messaging nightmare.

FIX Protocol, Swift and ISDA have initially agreed to provide market participants with a visual map of industry standard protocols and highlight the transition, or “peering”, points between them. The driving force behind interoperability is that rather than all standards converging under one roof, each retains its own syntax and format but mapping between these standards is introduced to ensure conversion between them can be performed automatically. The standards bodies are keen to stress that the immediate concern of the group is a reworking of business processes and not a change to the messaging standards themselves.

The cost implications for end users will therefore be minimal. Regardless of these short term assurances, there have been rumblings across the industry about the potential cost of moving to ISO 20022 in the long term, which is the stated end goal of the initiative. Given that adoption of ISO 15022 messaging was such a laborious process and market penetration is nowhere near what was intended, this does seem to be a worry for the future.

Right now, however, the standards bodies seem to be avoiding the question of how any kind of future message convergence will be tackled. Perhaps it will become clearer once these first steps have been accomplished and the industry finally has a workable solution to the current processing nightmare. On the entity identifier front, the roadmap will also involve a common data dictionary and part of this should include the introduction of a BEI. Unfortunately, the introduction of an industry standard BEI remains a long way off, as the ongoing stand off between the IBEI community and the BIC community continues unabated.

Although eight European countries have agreed to adopt the IBEI, the rest of the world is continuing to debate whether the BIC can be adapted for use as a BEI in its stead. BIC users are being accused of holding the industry back and Swift appears to have gone quiet over its proposals for collective investment vehicle identification codes (CIVICs), which it announced at Sibos 07 in Boston. In an attempt to shed light on the matter, the EDM Council has produced a report looking into the reasons behind why the industry is so wary of the BEI. According to the report, although institutions are aware of the benefits of introducing a BEI, they are more concerned about the costs, especially given the current economic climate.

Last year’s credit crisis has raised the profile of some of the other areas of data management however, as A-Team Group and GoldenSource’s recent study into OTC derivatives and data management indicates. Institutions’ increased focus on risk related to complex instruments is driving them to re-evaluate their data management systems and spend more money on IT resources in this area. Perhaps it’s not bad news for everyone then.

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