UK Government Backs T+1 Transition Plan

The UK government has accepted all the recommendations contained in the report from its independent Accelerated Settlement Taskforce, and targeted 2027 for switching its securities markets to T+1 settlement. The changeover may be hampered, however, by an inability to coordinate with markets in the European Union.

The report argues that a move to T+1 will improve UK market resilience, provide cost savings for investors and reduce the risks associated with a longer period between trading and settlement – all factors the government agrees with – however the transition could face difficulties due to what is likely to be an extended process to change EU markets. In March, the EU financial regulator ESMA published a feedback summary from its own enquiries into switching to T+1, which included the statement that it would be “at least” 32 months after its notifies market participants of its intention to switch before actual transition takes place.

Observers point out that ESMA has yet to author and publish a final report on the issue – seen as likely towards the end of 2024 – it also has to pass several EU political approvals. This means a transition in the EU is unlikely before 2028, with two sources estimating to The Full FX that a more realistic date “could be 2030”.

In its response, the UK government says it has to “consider” how harmonised settlement cycles across major financial centres could be beneficial for market participants, adding, “If this [harmonised transition] can be done within a suitable timeframe we could align our timetable for the transition to T+1. The government looks forward to engaging with our European partners – in particular the EU and Switzerland – to see if we can align our work on this.”

The UK has also established a Technical Group to take forward the implementation of the UK move to T+1, which will develop the technical and operational changes necessary for the transition, and to set out how these should be implemented. The group will also determine the appropriate timing for mandating these changes, which should be a date in 2025, and the overall ‘go-live’ date for T+1.

In a response to the statement, the Association of Financial Markets Europe (AFME) stresses the need for harmonisation between jurisdiction. Its CEO, Adam Farkas, says, “AFME agrees with, and supports, the conclusion of the report that UK securities markets should adopt a T+1 settlement cycle, within a reasonable timeframe. The report recommends a coordinated approach across the UK, EU and other European jurisdictions. AFME fully endorses this conclusion, and we further note that the report does not identify any material advantage for UK capital markets to move to T+1 out of step with regional partners. We therefore call on authorities to adopt a collaborative approach in order to reach a pan-European consensus on timing.”

North American markets transition to T+1 settlement in securities markets at the end of May, something that could potentially cause workflow and FX hedging problems for asset managers, as they scramble to meet the deadline.

Farkas, in his statement, observes, “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.”