We are on the verge of a once in a generation improvement to the way money is moved on a global scale. A new, established international standard for financial messaging (ISO20022), is poised to revolutionise the global payments landscape and positively impact the broader economy.
For law firms this will finally bring some much needed support when it comes to preventing money laundering and fraud, with greater transparency around where money has come from, where it is going to, and what it’s for.
In the short term, the impact of ISO20022 will be minimal for firms who initiate payments manually through their online banking. However, in the long term firms who do not have an integration between their own systems and their bank are likely to find it increasingly difficult to meet new payment requirements.
In this article we focus on the first of many changes affecting payments – the use of Purpose Codes that will become mandatory for conveyancers making CHAPS payments from November 2024.
What is ISO20022?
ISO20022 is the new global standard for payment messages and the UK’s major payments systems are moving over to it. CHAPS was migrated to the new standard in June 2023. The successor to Faster Payments, known as the New Payments Architecture (NPA) will also use it when it launches in 2025.
The new standard uses Extensible Markup Language (XML), which delivers a huge amount of flexibility as to what information can be transmitted along with a payment, as well as a degree of commonality for international payments.
This will allow for a much richer set of information to be included within payment messages, which will ultimately help prevent money laundering and other financial crime by making it more difficult to move money without clearly identifying who the parties to the transaction are – especially when it comes to high value transactions such as property purchases.
What changes are coming and when?
Whilst there are multiple stages to the Bank of England’s implementation strategy for ISO20022, the first change we will see in the legal sector will be the requirement for the use of Purpose Codes for property related CHAPS payments.
Purpose Codes are an attempt to classify the reason that money is moving between two bank accounts. The Bank of England has set out 127 purpose codes so far which include reasons such as payments for rent, electricity bills, income tax, benefits and savings.
By November 2024, conveyancers will need to be selecting the correct code for CHAPS payments when the payment relates to the items below:
| Purpose Code | Name | Definition |
| HLRP | Property Loan Repayment | Transaction is related to a payment of a property loan |
| HLST | Property Loan Settlement | Transaction is related to the settlement of a property loan |
| PLDS | Property Loan Disbursement | Payment of funds from a lender as part of the issuance of a property loan |
| PDEP | Property Deposit | Payment of the deposit required towards purchase of a property |
| PCOM | Property Completion Payment | Final payment to complete the purchase of a property |
| PLRF | Property Loan Refinancing | The transfer or extension of a property financing arrangement to a new deal or loan provider, without change of ownership of property |
From November 2024 onwards, the Bank of England will also encourage the use of codes that are indirectly related to property transactions, for example:
| Purpose Code | Name | Definition |
| PTXP | Property Tax | Transaction is related to a payment of property tax |
| PPTI | Property Insurance | Transaction is a payment of property insurance |
| BLDM | Building Maintenance | Transaction is related to a payment associated with building maintenance. |
What should my firm be doing today?
For all firms that undertake conveyancing, ensuring your accounts team is aware of the changes and can code payments appropriately will require training.
If your firm makes CHAPS payments manually through online banking, the impact of having to select a Purpose Code from a drop down list should be minimal.
For firms that rely on exporting a list of payments from a case management or accounts platform, and then performing a bulk upload of CHAPS payments, changes may be needed to your tech stack.
The Bank of England notes that: “the earlier firms use Purpose Codes, the sooner both they and other key stakeholders will derive the intended benefits.”
All law firms should be speaking with their banks and their case/accounts software provider to understand when they will be able to start making payments using Purpose Codes, along with what the roadmap for ISO20022 support looks like.
ISO20022 and the future of property payments
The Bank of England, in consultation with the property sector has produced a guide for how ISO20022 will likely impact property related payments.
For conveyancers, the vision is for payments to be strongly linked to properties by including additional relevant information within the payment, such as:
- HMLR title number
- Property address
- Mortgage provider and account number
- Buyer and seller information (i.e. name, nationality, DOB)
- Legal Entity Identifiers (LEIs) for each conveyancer
If the inclusion of such information becomes a requirement (or even best practice) it will no longer be feasible to initiate payments directly from a bank.
Firms should start to look at what information they hold in their platforms, how it is structured and how such information could be automatically added to payment requests when needed.
About the Author
Matt Pennington is a co-founder of Safe Capital – the trusted secure solution for transferring funds and sharing verified bank details between parties, helping to protect law firms and their clients from payment fraud and money laundering.
