We sat down with some of the brilliant leaders from the capital markets industry, market infrastructure providers, leading industry bodies, global consulting firms, and top industry analysts at the T+1 London Roundtable. We discussed the T+1 regulatory change from SEC, how FCA and UK firms are reacting to it, the key challenges banks and buy-side firms are facing, and the impact this will have industry-wide.
Below are the key highlights of our discussion
The UK is still getting ready for the transition to T+1, and the consensus was that the timing is wrong to drive T+1 now when T+2 is working perfectly well globally. It will yield more fails, and the cost is a big issue. On top of that, T+1 poses more challenges for the UK due to the time zone difference.
UK and European regulators could feel additional pressure to follow their US counterparts, given worries of misalignment with the US moving forward. Europe has to contend with multiple market infrastructures, legal frameworks, and a strict settlement discipline regime, while the UK attempts to align itself more closely with the US.
Lack of awareness adversely impacting participation. The challenge with the UK task force is that many industry CEOs need to be made aware of the discussions and fully informed about the implications, except for those who have a member of the task force. So, there is a need for increased awareness and active participation from industry leaders to ensure their concerns are heard.
Buy side will need to speak up. Only a small percentage of buy-side firms discuss the challenges this move brings. They need to take an active role in expressing their opinions to ensure the regulators understand the potential challenges and do not see any benefits. The pressure and costs will come from broker-dealers and custodians.
Disparate challenges exist between large banks and medium and small firms. The large banks have substantial differences in their operational processes among themselves. However, Tier 2 and Tier 3 firms are more likely to be impacted, given their significant non-automated client bases. The smaller firms also don’t connect to a central SSI repository and manually process trades at the end of the day.
The T+1 operating model revolves around automation. A potential benefit is that building the T+1 operating model revolves around automation and investing in post-trade technology solutions, resulting in a more efficient ongoing process. We need to increase awareness rather than focus solely on risk reduction. Processing more information in a streamlined manner using T+1 can achieve risk mitigation. However, funding is still seen as a challenge. Also, UK banks trading in the US are driving short-term change to address this but are extremely concerned about when the UK will bring T+1 regulation.