Making a smooth transition to SWIFT Category 7 messages
Next year, SWIFT introduces the second phase of structural changes to its Category 7 messages, which cover documentary credits and guarantees. Its 2018 updates to letter of credit messages are accompanied in 2021 by changes to the way in which guarantees are communicated. Both these changes are driven by today's need for more structured data to promote both straight-through-processing (STP) and digitalization, and to fill gaps identified by banks. The new message formats have more fields, but because they no longer contain any free-format data, they enable STP and ensure banks can clearly see details of guarantees and counter-guarantees.
No more MT700
The key change relates to standby letters of credit. Previously, these were communicated using the MT700 letter of credit message. Now, they will use the MT760 message type, the same as for guarantees, reflecting the similarity between these two instruments. SWIFT is using the term "undertakings" to refer to both standby letters of credit and guarantees.
Compatibility and evolution
How can banks ensure a smooth transition? Banks should look for flexibility in their software. The ability to be compatible now as well as after future changes such as the SWIFT 2021 evolution will boost future agility, whilst ensuring readiness for change with minimal disruption. The key is to look for a product that is able to support all business types such as standby letters of credit and guarantees through the undertakings, encouraging a smooth evolution and compatibility now and into the future.
Another thing that banks should take into consideration is the possibility of front-to-back enablement. Customer expectations are now higher than ever before and continue to increase year on year. Banks are expected to make the transition to the new formats quickly, so as not to fall behind the competition. With front-to-back enablement, corporate channels can be integrated with trade back-office systems to reduce implementation time, going to market with the new message times as soon as possible to ensure customer expectations are met.
The question remains: Will you choose to implement now? Or wait until 2021? You can choose to defer the changes, buying you time to focus elsewhere but also risking your business being ready for the changes. Or you can implement now, ensuring readiness and also giving you the chance to reap the benefits of having time to review and realize additional value for your business, spaces to advance and evolve, opportunity for innovation and ultimately, future-proofing for your organization.