UK steps up momentum on faster settlement with industry consultation on the path to T+1

The report sets out draft recommendations across several key focus areas for market participants, including the adoption of greater automation, adherence to updated market practices, and careful consideration of the impact on trading patterns. 

The report stresses the need for industry-wide collaboration and calls on market participants to provide feedback on the proposals.

This interim report is a key milestone in the UK’s journey to T+1 settlement and the authors are now calling on market participants to engage in this consultation to ensure the final recommendations reflect the full spectrum of industry needs.

The precise 2027 date for the move over will be published at the start of next year following final consultation with the industry. 

This change will align the UK’s equity markets with the settlement standards already in place for government bonds (Gilts) and will bring significant benefits including improved liquidity, reduced counterparty risk and increased market resilience.

This is a major milestone in a process which is key to modernising the UK’s financial sector, 

reducing the time between trade execution and settlement, aiming to enhance operational efficiencies, reduce settlement risk, and maintain the UK’s competitive edge in global financial markets.

Here’s the run down:

• The taskforce has issued 57 recommendations to market participants and regulators as it prepares for the move to shorter settlement cycles.

• The U.S. has already made the move from T+2 to T+1, which refers to the days that can elapse before a securities transaction closes and the asset is exchanged for cash. The U.K. is hoping to do so, with the EU and Switzerland, by the end of 2027.

• The taskforce, led by chair Andrew Douglas, has issued recommendations ranging from regulatory and supervisory support to industry simulations, and from settlement performance benchmarks to industry simulations. For example, it recommends the FCA and PRA discuss with supervised market participants any legislative requirements

• The report provides the scope of instruments that will be covered by T+1 implementation depending on two scenarios: One, that the U.K. migrates ahead of the EU and Switzerland. In that scenario, some instruments such as exchange-traded products and eurobonds would be exempt until the EU transitions as well. 

• In scenario two, the preferred situation, the three jurisdictions migrate at the same time, in which case all instruments covered by the Central Securities Depositories Regulation immediately are subject to T+1.

• Market participants have until the end of October 2024 to provide comments on the draft recommendations, with a final report due in December. 

The Path to T+1: What’s Next?

The draft recommendations are now open for consultation until 31 October 2024 and the taskforce is keen to gather insights from across the industry, aiming to refine its proposals and address any potential challenges highlighted by stakeholders.

Following the consultation period, the group will integrate feedback into the final report, which is expected to be published in December. This final version will include the sequencing and timing of recommendation implementation, as well as interactive tools to help firms plan their transition.

The transition to T+1 settlement is not just about speeding up transactions; it represents a fundamental shift in the UK’s financial market infrastructure. As the world moves towards this faster, more efficient standard, the UK’s commitment to T+1 is a decisive step towards securing its position as a leading destination for global investment.

As the UK prepares to take this pivotal step towards accelerated settlement, the T+1 Technical Group’s interim report represents a critical juncture in the journey to a faster, more resilient financial market. 

Market participants are urged to engage with the consultation process to shape the future of settlement in the UK. For more details and to read the full report.

Consultation Webinar

The technical taskforce is hosting a consultation webinar on 17 October for market participants to discuss the recommendations.

This event offers the opportunity for market participants to discuss the recommendations in detail, raise concerns, and gain clarity on the proposed changes. While in-person attendance is limited to active members of the TGT+1, virtual participation is encouraged, with registration details available on the task force’s website.

Register for the consultation webinar.