The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

A-Team Analysis: Time to Look for Alternatives to ISO for Standards?

Unrest among industry participants about the efficacy of ISO standards creation is reaching a peak as the failure of the formal process to keep pace with the reality of market requirements looks set to prompt a rethink about the best way to create standards for financial markets.

Whether there is a better method for solving some of the trickier standards-related issues the industry faces – such as the ongoing controversy over Cusip-based ISINs or the continuing challenge of finding a solution for universal business entity identification – remains to be seen.

But, while the need for standards is not disputed, patience with the ISO process is wearing thin, it seems. The EDM Council goes so far as to put ISO standards on its list of “What’s Out” for 2008 (the corresponding “What’s In” is internal standards).

There are several factors contributing to frustration with the ISO process – and none of them is new. Though a change of convener and an attempt at a “new start” might work wonders, the progress – or lack thereof – of WG1 (which has been supposedly working on a technical review of the ISIN) during recent months is one factor. These efforts have been pretty seriously derailed as a consequence of the Standard & Poor’s Cusip charging issue – which has been bubbling under for some four years – raising its ugly head once again. The root of the problem is that none of the relevant bodies – whether ISO or ANNA – wants to or thinks it can take responsibility for solving this problem once and for all. This shouldn’t in theory have impacted the technical work of WG1, but it ended up doing so because some members of the working group decided it was the environment in which to take action on the charging issue.

As a result of this distraction, not much has been achieved, though, according to Bill Nichols of the Financial Information Services Division (FISD) of the Securities & Information Industry Association, there is the potential for it to be so now.

“WG1 has been in place for a while, and we couldn’t have got to where we are today without it,” he says. “FISD participates in the group on behalf of its members and has put together a shadow group with participation from across the board and that has been pretty active. There is a spectrum of opinions within that group about the Cusip business issue, but the consensus among our members – no matter where they come down on the business issue – is that ISO is not the place to discuss it. There were some people on the ISO working group who DID think it was the right forum to discuss these issues. But it became apparent there was not a whole lot to be done through WG1 about the business issues in the ISO context, and now it is time to move on. In fact, ISIN was only up for technical review anyway, and that work can now proceed,” he reckons.

While this isn’t an example of the ISO process failing to yield a useable standard, it does demonstrate something of a gulf between ISO, what it can do and how it works, and what the industry considers as standards-related problems that need to be solved. And the fact remains that the Cusip charging issue is perceived to be one factor preventing ISIN from fulfilling its intended purpose as a universal instrument identifier.

The fate of the international business entity identifier (IBEI) – entrusted to WG8 under the auspices of ISO – is arguably a more damning example of how the ISO process is failing the industry. As has been thoroughly documented in Reference Data Review over recent months, the IBEI has singularly failed thus far to get even close to fruition – and this despite intense demand for a universal entity identifier to help firms meet regulatory and compliance requirements. The IBEI was voted down by the national groups and though WG8 will reconvene, progress made over the past few years has been pitiful. The beginning of the end came when Swift declined to become Registration Authority (RA) for the entire IBEI. At this point, says Nichols, WG8 “basically gave up” – which has created “a lot of frustration” with the group. The rights and wrongs of Swift’s decision not to act as RA (except for the BIC, of which more later) notwithstanding, any process that can be so seriously wrong-footed by the attitude of one industry body must surely be of questionable robustness.

To compound the negative impact of the shortcomings of the ISO process regarding IBEI, a number of alternative standards initiatives have sought to fill the vacuum – whether the individual NNAs issuing their own IBEIs or the Swift-led initiative to extend BIC to cover funds (with codes called CIVICs) in conjunction with a number of banks and Deutsche Boerse-owned counterparty data specialist Avox. Some would say – and indeed have said – that if the purist approach to creating a universal standard for entity identification hasn’t worked, then a pragmatic solution based on extending existing codes is a perfectly acceptable way to get the job done.

But all agree that the BIC, even cleaned up and extended, could never be as functional as the IBEI. A bird in the hand may be worth two in the bush, but what happens when the cobbled-together solution starts to split at the seams, especially if industry attention has been diverted away from the IBEI goal in favour of getting something – anything – in place in a reasonable timeframe?

“I don’t know if there is case for evolving existing codes like the BIC or not,” says Nichols. “It is certainly the case that if you do that you will be shoehorning a bunch of things into the code, because it simply doesn’t have the fields required. There will have to be a big series of maps. I have talked to some of the regulators, including the SEC, and the consistent theme is that if the identifier only covers publicly traded companies it won’t be good enough. BICs and CIVICs can’t cover everything that’s needed. That’s not to say it’s bad to have codes covering what they cover. But it’s still only an answer for part of the problem.”

FISD is putting together a working group to “take a look at what we could do to move the ball forward”, Nichols adds. “We plan to put together a fairly nuts-and-bolts, here’s what works approach to dealing with IBEI. We are just getting started but there seems to be enough interest and willingness to commit resources to make it a reasonably high priority.” It will also participate in the reconvened WG8. “The ideal would be to get a critical mass of backing over the next six to 12 months to make WG8 a starting platform, but we consistently hear that before a proposed standard gets into the ISO process it needs to be better distilled.”

The task of creating standards for securities trade processing is not an easy one, he points out. “The things we are trying to standardise can’t be standardised in the same way as a manufacturing process because they are not static.”

Nonetheless, he adds: “We are seeing some of our larger players on the banking and broker/dealer side getting to the point where the pain is high enough that they want to sit down and make something happen to get the standards process rolling.”

The problem is, Nichols reckons, “much of this is not ready to go into the ISO process”.
“There is still a belief that standardisation is necessary, but there is also a growing realisation that we can’t expect in some areas for standards to just be handed back to us on a platter.”

Related content

WEBINAR

Upcoming Webinar: Data management for ESG requirements

Date: 13 May 2021 Time: 10:00am ET / 3:00pm London / 4:00pm CET Duration: 50 minutes Environmental, Social and Governance (ESG) investing is moving into the mainstream, requiring asset managers to develop ESG strategies that deliver for both the firm and its investors. While these strategies can outperform those that do not include ESG factors,...

BLOG

Derivatives Service Bureau Sets Timeline for Consultation on OTC ISIN and CFI Services in 2022

The Derivatives Service Bureau (DSB) has published the timeline for its 2021 industry consultation on 2022 OTC ISIN and CFI service provision. Core themes focus on providing updates for service enhancements sought last year, as well as risk analysis relating to the DSB’s cybersecurity and cloud resilience. The OTC ISIN and CFI consultation will operate...

EVENT

Data Management Summit New York City

Now in its 10th year, the Data Management Summit (DMS) in NYC explores the shift to the new world where data is redefining the operating model and firms are seeking to unlock value via data transformation projects for enterprise gain and competitive edge.

GUIDE

Data Lineage Handbook

Data lineage has become a critical concern for data managers in capital markets as it is key to both regulatory compliance and business opportunity. The regulatory requirement for data lineage kicked in with BCBS 239 in 2016 and has since been extended to many other regulations that oblige firms to provide transparency and a data...