The imminent transition to T+1 settlements in the US and Canada on May 28, 2024, has sparked discussions among market participants in the UK and Europe. Regulatory task forces have been established in both regions to gain insights into the challenges and impact of this regulatory change. Meanwhile, countries like India and China have already undergone successful transitions to T+1 settlement cycles, providing valuable insights for others to learn from.

During the T+1 London roundtable discussion hosted by LatentBridge, industry leaders representing capital market firms, infrastructure providers, industry bodies, consulting firms, and analysts identified a few key areas of focus.

Most participants are still getting the lay of the land: The lack of awareness and industry participation poses a challenge for the UK task force as banks, financial services firms, broker-dealers, and custodians are still familiarising themselves with T+1 settlement. Additionally, addressing the operational challenges faced by medium and small firms, which often rely on manual processes, is essential for a successful transition to T+1 settlement.

Global changes are adding more pressure: UK and European regulators may face additional pressure to align themselves with accelerated settlement cycles in countries like India, China, the USA, and Canada while managing the challenges posed by complex market infrastructures and legal frameworks. Industry professionals also expressed concerns about the timing of implementation and the time zone considerations, as it could lead to a rise in trade fails and an increase in costs due to technology investments, as well as penalties and fines.

Operations have a daunting journey ahead: In a world with shortened settlement cycles, participants unanimously acknowledged the necessity for highly efficient and automated post-trade securities operations. Several critical areas of concern emerged, including the prohibitive costs associated with non-compliance in the affirmation process, effective pre-funding and liquidity management, efficient management of buy-ins and stock recalls, the need for upgraded SSI matching solutions, and the implementation of real-time exception management and remediation systems.

Technology to pave the way forward: Transitioning to T+1 settlement offers the potential for increased automation and streamlined processes in post-trade operations, leading to improved efficiency and risk mitigation. Financial institutions need to address the funding challenge and proactively invest in automation and post-trade solutions to align with the new settlement timeline, ensuring a smoother transition and maximising the benefits of automation while meeting regulatory requirements.