UK's T+1 Push: Automate or Fall Behind

The UK financial industry faces a stark choice: automate or risk failure. This is the underlying message of a new report outlining the UK’s planned move to next-day (T+1) settlement of securities trades by 2027.

The Accelerated Settlement Taskforce, Technical Group (TGT) report states bluntly that “process automation, either real-time or intraday, will be required to meet the reduction in processing time resulting from the transition to T+1.” It warns that without automation, firms may struggle to meet tighter deadlines and could see increased operational risks.

This push for automation is part of a broader overhaul of the UK’s securities settlement system. The report lays out plans to shift from the current two-day (T+2) settlement cycle to T+1 by the end of 2027, a change that will affect every aspect of trade processing.

The TGT has issued 43 principal recommendations and 14 additional suggestions to guide this transition. Central to these is the creation of a “Post-trade Code of Conduct” that all UK market participants would be expected to follow.

While automation is a key focus, the scope of changes is far-reaching. The report initially excludes certain instruments like Exchange Traded Products (ETPs) and Eurobonds from the T+1 requirement if the UK moves ahead of the European Union. This phased approach aims to minimize disruption and align with potential future changes in EU markets.

Financial Market Infrastructures (FMIs) are set for particular scrutiny. The report recommends that FMIs review their systems, rulebooks, and operational resilience to ensure T+1 readiness. This includes considering changes to impact tolerances and participating in industry-wide simulations.

Corporate actions processing also requires attention. The report suggests mandating the use of standardized dividend procedures and electronic entitlement elections to reduce errors and improve efficiency in a compressed settlement timeline.

The securities lending market faces potential challenges. Recommendations include implementing confidentiality policies for pre-sale notifications, automating recall processes, and establishing clear market cut-off times for recalls.

Foreign exchange (FX) markets may also see impacts, particularly for trades related to securities settlement. The report emphasizes the need to ensure that as many trades as possible can settle through CLS (Continuous Linked Settlement) to mitigate settlement risk.

Cross-border transactions receive special consideration, acknowledging that participants in different time zones, particularly in Asia-Pacific, may face challenges meeting T+1 deadlines.

Regulatory and supervisory support is deemed crucial for successful implementation. The report calls for clear regulatory mandates and supervisory expectations to drive industry-wide adoption of T+1 practices.

The TGT recommends ongoing industry engagement, including reconvening workstreams to monitor developments and incorporate lessons from other markets transitioning to T+1, such as the United States.

While the report sets out a comprehensive roadmap, many details remain to be finalized. The exact implementation date, transition plan, and final recommendations are still to be determined, with further industry consultation planned.

The move to T+1 settlement represents a significant undertaking for the UK financial markets. It promises benefits in terms of reduced risk and increased efficiency, but also demands substantial preparation and investment across the industry. As the 2027 target approaches, market participants will need to closely monitor developments and adapt their operations to meet the new T+1 standard.