Enforcement of ISO 20022 Enhanced data in CHAPS mandates the obligatory utilization of purpose codes and LEIs in FI-to-FI payments and property payments within the UK banking sector, effective November 2024.

The mandatory use of purpose codes and Legal Entity Identifiers (LEIs) for Financial Institution (FI) to FI payments and purpose codes for property payments in the UK banking sector necessitates the following validation, once these regulations are implemented by each of the participating financial institutions:

1. Purpose Code Validation:

• During software testing, ensure that purpose codes associated with CHAPS payments, as well as other FI to FI and property payments, adhere to the specific format and requirements mandated by the regulation. This includes checking for the correct use of alphanumeric characters and any specified length limitations.

2. LEI Integration Testing:

• Verify that the system is capable of integrating and validating Legal Entity Identifiers for all relevant entities involved in CHAPS payments, as well as FI to FI and property payments. This includes checking the accuracy of LEIs, their alignment with the Global Legal Entity Identifier System (GLEIS), and adherence to any local regulatory requirements.

3. Transaction End-to-End Testing:

• Conduct comprehensive end-to-end testing of the entire transaction lifecycle, ensuring that purpose codes and LEIs are correctly captured, transmitted, and received throughout the CHAPS payment process, as well as other relevant transactions. This involves testing across different systems and interfaces involved in these payments.

4. Regulatory Compliance Checks:

• Specifically test the software to ensure that it generates reports and documentation that align with regulatory reporting requirements related to purpose codes and LEIs for CHAPS payments and other transactions. This includes validating that the system produces accurate and complete records for regulatory audits.

5. Error Handling Scenarios:

• Test various error scenarios, such as invalid purpose codes or missing LEIs, to confirm that the system appropriately identifies and handles errors in the context of CHAPS payments and other financial transactions. This ensures that users receive meaningful error messages, and the system follows the prescribed error-handling procedures.

6. User Interface Validation:

• If the introduction of purpose codes and LEIs involves changes to user interfaces, conduct user acceptance testing (UAT) to ensure that the updated interfaces are user-friendly for CHAPS payments and other transactions. Users should be able to easily input and validate the required information.

7. Performance Testing for Increased Load:

• Assess the performance of the system under increased load related to CHAPS payments and other transactions, considering the addition of purpose codes and LEIs. This includes testing to ensure that the system remains responsive and stable even during peak transaction periods.

8. Security and Access Controls:

• Given the sensitivity of CHAPS payments and other financial transactions, perform security testing to verify that the system enforces appropriate access controls for purpose codes and LEIs. This includes testing user permissions and ensuring that only authorized personnel can view or modify this information.

9. Documentation Accuracy:

• Test the accuracy and completeness of documentation generated by the system for CHAPS payments and other transactions, such as transaction receipts and reports. Confirm that purpose codes and LEIs are accurately reflected in these documents in accordance with regulatory requirements.

10. Audit Trail Verification:

• Specifically verify that the system generates and maintains accurate audit trails for CHAPS payments and other financial transactions. This includes confirming that the audit trails capture changes to purpose codes and LEIs, providing a transparent record for regulatory scrutiny.

By tailoring software testing to address these specific aspects of the regulation, financial institutions can ensure not only compliance but also the seamless integration of purpose codes and LEIs into their systems and processes.