ISO 20022 is moving up in the world. Whilst the standard often plays a key role in the detailed implementation stage for new regulations it’s unusual for the policymakers themselves to give it much thought. But last month, the UK government’s Department for Work and Pensions (DWP) announced that ISO 20022 will be a part of its new pension policy.
The government’s new pension bill includes a requirement for pension providers to automatically transfer small pensions to a new provider when an employee changes job, commonly known as the ‘pot-follows-member’ policy. Without this the DWP are concerned that the pensions industry will be awash with millions of small pensions created by auto-enrolment. Rather than create a new centralised system to automate this the DWP have decided to use ISO 20022 to allow multiple technology vendors to create interoperable systems.
This is not a new idea. It dovetails with a much broader initiative started back in 2012. In response to RDR, the UK Funds Market Practice Group (UKFMPG) released an ISO 20022 based standard for transferring portfolios of investments between providers. Since then, the standard has been adopted by multiple technology companies, employed by hundreds of financial services providers and transferred millions of investment accounts for the end customer. In recognition of this, the DWP has asked UKFMPG to extend their work to cover ‘pot-follows-member’.
The reason for all this interest in ISO 20022 can be summed up very easily: competition. Financial services regulation is increasingly concerned with competition. And not just competition between financial product providers but also competition between the technology companies that serve the industry. The logic behind the UK transfers work is this: if we want to enable investment accounts to flow freely across all parts of the industry, but we don’t want a monopoly technology supplier and a single point of failure then we need an open standard to allow multiple competitive, interoperable systems to be created. And the foundation for that is ISO 20022.