The UK should commit to move to a T+1 settlement cycle. That is according to the UK’s Accelerated Settlement Taskforce, which recommends setting up a technical group to handle the transition.
Setting a deadline of implementation, no later than 31 December 2027, the report recommends the UK, EU and other European jurisdictions work together to implement T+1. The US has committed to move to T+1 in May 2024 and the EU is consulting on a move to T+1. “The opportunity to learn from the US move to T+1 in May 2024 is particularly important.”
The report suggested that there is a “clear consensus” that the UK should move to a T+1 settlement cycle, citing harmonisation with international markets, improving market resilience, and a reduction in risk and cost savings. “The discussion for the UK needs to shift to how it moves to T+1 rather than whether it should do so,” the report noted.
As such a move would impact fund managers, brokers and custodians, moving to T+1 would trigger “significant investments” in automation and standardisation of core back office and post trade processes, the report noted, and would have a “material market benefit”.
Commenting on the report, AFME CEO, Adam Farkas, said the group agrees that UK securities markets should adopt a T+1 settlement cycle, as well as the recommendation that the UK should work with its neighbours.
“We highlight the need for further detailed technical analysis across Europe in order to determine the appropriate implementation date, and the nature and timing of any broader market changes that are necessary to facilitate T+1. This analysis should incorporate lessons learned from the US move to T+1 in May 2024. We therefore welcome the establishment of the Technical Group and we will continue to share our, and our members’ wealth of expertise during the next phase of work,” Farkas said.
Alex Knight, head of EMEA, Baton Systems, said: “Clinging to outdated settlement practices is akin to using a horse and buggy on the information superhighway. But setting such a tight deadline risks overlooking critical details and could potentially throw the financial ecosystem into operational chaos.”
“The cost of settlement fails is truly eye watering. This government taskforce report is further evidence of the need to automate, increase efficiencies and put in place effective post-trade payment and settlement controls. Take for example the need for automated real-time reconciliation of statements versus ledgers for bank-to-bank and bank-to-client payments.”
‘Currently, reconciling inbound and outbound payments typically takes place the day after settlement is due to have occurred, or later. In this arrangement, operations, treasury, not to mention risk teams, are all operating without critical insight into what is actually going on at that moment in time,” Knight added.
The report recommends the scope of the move to T+1 should be finalised by the technical group and could include an appropriate safe harbour mechanism for ETFs and certain other securities that trade in the UK but settle outside the UK.
Responding to the taskforce’s report, Ben Springett, head of European electronic and program trading at Jefferies, said: “The report from the UK Accelerated Settlement Taskforce outlining UK’s commitment to move to a T+1 settlement period by 2027 is a step in the right direction, as global markets look to align with the US and Canada. A specific date will be provided in due course, but today’s announcement has fired the starting gun for market participants.”
“The network of firms operating across the trade and post-trade ecosystem will be looking for further cost-benefit analysis from the Taskforce and a confirmation of in-scope instruments before a final date is set.”
“The move in May this year by the US and Canada will provide a rich set of learnings, particularly for UK and European firms that will begin to settle US securities on a T+1 basis. There is no doubt that the initial transition will lay bare the challenges and opportunities posed by the shortened settlement cycle, with large market participants likely to benefit thanks to their scale, infrastructure and expertise.”
“However, a successful transition in the UK would be bolstered by European alignment and is therefore something that firms with a tilted interest to the continent would welcome.”
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