The introduction of purpose of payment codes (POPs) and legal entity identifiers (LEIs) in ISO 20022 payments messages will help advance payment transparency and financial compliance.
As the name suggests, POP codes indicate the intent behind each transaction.
The various payment schemes, such as CHAPs, have created extensive, pre-defined lists of POP codes, and it will be important to ensure the appropriate code is selected when constructing a payment, as the lists can be very granular.
Ultimately, the POP code is not just about adding detail.
It’s about enabling banks, regulators, and payment schemes to perform targeted checks based on the varying risks associated with different types of payments.
For example, in the UK, it has been mandated that high-value property transactions will be the first to use the POP tag, this is because the high-value nature of property makes the sector susceptible to money laundering.
The LEI is a way of uniquely identifying the organisation to which you’re sending money.
Currently, if an accounts team is paying a supplier, they rely on the name and the address.
Often, the name may not be the business name; it could be a trading name, and the address might be a serviced office where multiple companies operate.
As a result, this information alone is insufficient to identify where the money is going.
In contrast, LEIs provide a unique and precise identifier for the legal entities involved, enhancing the tracking of funds and creating a more transparent financial environment.
In my next piece, I’ll discuss structured addresses and how to handle banks’ varying data requirements when sending payments.
Watch Episode 5 on-demand
The third episode of Mastering ISO 20022, a series of video shorts, is now available, designed to help you understand how to take your business to ISO 20022 compliance in time. Watch episode 5 of the Mastering ISO 20022 Video Series now.
