FCA: Our T+1 Journey Starts Now

Welcoming the Accelerated Settlements Taskforce’s final report

We welcome publication of the Accelerated Settlements Taskforce’s (AST) final report.I want to commend members of the group for the strong progress they have made in setting out a detailed implementation plan for the UK to move to a T+1 settlement cycle by 11 October 2027.

We are grateful to all of you for your work, for the opportunity to act as observers on the group and to Andrew for his strong leadership.I have noticed that the cover of the report is a fetching colour of go-faster green, which is most appropriate for looking forward to the next stage of the work!

Looking forward – what should firms do next?

Looking forward, firms must now turn their attention to implementing the new T+1 requirement.Our role will be to support firms as they transition. All firms that participate in wholesale markets are likely to be impacted in some way, from banks, to asset managers, to platforms and corporates. However, the operational changes and challenges faced will likely differ from firm to firm depending on, among other factors, their business models, the settlement systems they currently utilise and the capacity for those systems to be upgraded.If there is only one message I would like you all to take away today is that you should start thinking now and put a plan in place as soon as possible to move to T+1 by the deadline.You may think October 2027 is a long way from now, but for some firms there is much to be done and no firm should delay. I want to be clear today on our expectations for firms and what they should be doing to meet the new T+1 requirement in time for October 2027.Consider 4 key areas in this context.

1. Read the AST report

The move to T+1 is a market-led initiative. The AST report sets out a roadmap of technical and operational recommendations that firms should implement, along with specified timings. It also sets out expected behaviours for firms. Firms should read carefully the contents of the AST’s report now and identify how best they can be implemented for their firm.

2. Plan early

Firms must plan and prepare early for the move to T+1. This notion is aligned with the Code of Conduct’s expected behaviour to ‘action this day’.Firms should not wait until 2027 to put in place relevant changes. Firms must start planning and putting plans into action from now.

Firms should determine what changes are required and how they will need to implement them, while seeking to avoid any unnecessary costs or complexity. Consideration should also be given to any changes to areas related to securities settlement, such as securities financing and foreign exchange markets.

One of the key recommendations in the report centres on the operational processes that need to take place to ensure faster settlement, including trade allocations and confirmations as well as the submission of settlement instructions to the Central Securities Depository. We encourage firms to consider their own processes and what may need to change to facilitate accelerated settlement.We also encourage firms to consider taking advantage of appropriate innovations in automation which may bring greater efficiency through increased settlement speed and accuracy. Automation may increase a firm’s processing capability, thereby increasing their resilience for dealing with extra volumes and increased risks at times of market stress.

3. Budget to execute the plan

Firms should consider any budgeting or resourcing needs for executing the plans they make. For example, plans to make changes to processes or operational systems may need special budgets or additional resources. The AST report contemplates that budgeting activity would happen this year, 2025.

4. Act to implement and test the changes

We expect firms to take timely action to put their plans into effect and to maintain momentum for the changes needed throughout the transition period. In considering the timeliness for action, regard must be given to testing. The changes required for T+1, such as the adoption of new or updated operating systems, need to be made in time to allow for testing both internally and with external parties.

Firms will need to engage early and regularly with all parties that are involved with their settlement processes. This includes all relevant internal stakeholders such as the front, middle and back office, legal and compliance, as well as their counterparties and any third-party service providers. Regular engagement and a clear understanding of roles and responsibilities will help to ensure a smoother ride to implementation.

In addition, we encourage firms to engage with the AST to raise any questions, to flag any difficulties and to make suggestions on what the group may do to make implementation happen more smoothly. Also, they could consider, as appropriate, whether to engage with trade associations or other market groups.

The AST report observes that the sooner firms implement the steps they need to take to move to T+1, the sooner they can capitalise on the benefits.

Our approach to support T+1

And I want to turn your attention now to what our approach will be as we support the industry move to T+1. Alongside the Treasury and the Bank of England we will continue our role as observers on the group. This will give us the opportunity to understand how firms are progressing through the transition.Even though the move to T+1 by October 2027 is industry-led, we will use aspects of our existing supervisory approach to support industry. We consider this in 3 core areas: engagement with firms, comms and market monitoring.

Engaging with firms

We will engage with firms on their T+1 plans as a part of our ongoing supervision. We may engage bilaterally or, where appropriate, in a wider forum, such as with trade associations. In discussing their plans, we would expect firms to cover how they are meeting our expectations on preparedness and how their activities are aligned, or not, with the recommendations as set out in the UK T+1 Code of Conduct. We expect firms to be open with us about their plans and any barriers they may face.We also plan to have engagement beyond our supervised firms with other market participants also impacted by the transition, including corporates and other non-financial counterparties.

Our communication strategy

We will use an active communications strategy throughout the transition period. Alongside the press statement released earlier this week, we launched a new T+1 webpage on our FCA website. This page will be updated regularly and used as a ‘one-stop shop’, to promote T+1 awareness and to send other messages, for example, on our expectations for firms. We will also consider the use of other existing communication tools – including speeches – where appropriate to promote the transition. So, keep an eye out for all of those!

Monitoring the market

Furthermore, with the data and other evidence available to us, we will monitor the market during and after the transition period to help us gauge firm progress on the move to T+1 and identify any issues that need to be addressed.We look forward to an orderly, timely transition to the new market standard of T+1 led by the market itself. However, where we see actions or inaction that would harm market integrity through this process, we will consider whether we need to intervene further.

International coordination

Securities markets are inherently global and cross-border. We therefore recognise the importance of ongoing international coordination. We believe such coordination should maximise the probability of an orderly transition, while minimising the frictions and costs of misalignment.

With this in mind, we recognise the government’s engagement with other European jurisdictions to support an aligned move to T+1 across Europe and the growing convergence around 11 October 2027 as the date for the move. We agree with the government that alignment would be highly desirable, and comparable views have been expressed to us by market participants.

Further, the benefits of international coordination extend to engagement between international regulators, and between industry groups in different countries, on experiences and plans with regards to the T+1 transition. For example, we support the feedback that we should learn lessons from the US transition and are grateful to the many firms involved that have already shared their experiences.

Key takeaways

Our aim is for all market participants to move to a T+1 settlement cycle efficiently and successfully by 11 October 2027 with limited market disruption.The clear message to take away today, as we embark on this next phase of the UK’s move to T+1, is that we expect firms to be prepared for the move to T+1. Remember the 4 key areas I have just highlighted:

1. Read carefully the AST report.
2. Plan early.
3. Budget to execute the plan.
4. Act to implement and test the changes, on a timely basis.

We look forward to engaging with firms through the transition to T+1 and realising the benefits and efficiencies this initiative will bring to the UK market, including its role in supporting growth and innovation.

Source: FCA

Shortening The Settlement Cycle – Speech By Sasha Mills, Bank Of England, Executive Director, Financial Market Infrastructure – Given At The UK T+1 Accelerated Settlement Market Event, Hosted By KPMG

The industry Task Force has set out a roadmap to shorten the UK securities settlement cycle to T+1. In her speech, Sasha Mills explains why it is important that firms and settlement infrastructures put in place plans for sustainable change that can bring long term efficiencies, while maintaining resilient settlement processes. As part of this effort, the Bank looks forward to continuing to have dialogue with regulators in other markets which are pursuing similar changes.

Good afternoon.

I’d like to thank Andrew Douglas and the Accelerated Settlement Taskforce for inviting me to speak.

And also to thank KPMG for hosting today’s event.

Last year I spoke about the Bank of England’s (the Bank) aim to facilitate safe innovation in the often overlooked post-trade segment of financial markets.^footnote[1] For those of you who read that speech, you might characterise my comments today as faster horses leading to faster settlement.

I’m pleased to have an opportunity to continue the theme of post-trade innovation – with a focus on bringing innovation to the post-trade settlement process for shares and bonds, making it more efficient, resilient and shorter.

We along with most other countries around the world – think that shorter settlement cycles – and the automation of manual processes this will incentivise – can bring a lot of benefits, for the UK as well as the market participants, domestic and international who make use of our markets.

As I’ll come on to explain in more detail in a moment, a shorter settlement cycle supports financial stability by reducing the risks faced by market participants and central counterparties, it will provide investors with quicker access to their funds, and it will free up resources for other productive uses, supporting growth.^footnote[2]

And a “by-product” of moving to T+1 is that post-trade processes will be made more resilient, faster, and more efficient.

But in order to achieve the reduction in risks and the freeing up of resources, firms need to help make a smooth transition to T+1 happen by preparing and testing changes to their systems and procedures, well ahead of the transition. By doing this we’ll help to avoid an increase in settlement fails and disruption that would undermine the benefits and confidence in UK markets.

We want to make sure that today’s high levels of operational resilience and low levels of settlement failure are maintained.

As I’ll come on to say in a moment, for the Bank, ensuring this is largely a question of time and money:

firms need to make use of the time available to prepare, adapt, and test systems – and they also need to provide sufficient budget to pay for these preparations.

Bank’s Stance on T+1

Before getting into some of the specificities, I wanted to set the stage by confirming that the Bank, along with colleagues at the Financial Conduct Authority (FCA) and HMT, supports the UK’s move to T+1 and notes the many benefits this move should deliver to the UK and the UK financial markets which are used by UK companies and households as well as market participants around the world:

• A shorter settlement cycle will mean that firms and central counterparties (or “CCPs”) face lower counterparty risks – and I anticipate this will lead to significant amounts of margin being released by CCPs to members and their clients,
• We estimate that the amount of margin released may be on the order of £1 billion^footnote[3] – a significant sum which could be used by market participants for other productive purposes, supporting the UK economy,
• It should reduce the costs and risks associated with the existing misalignment of settlement cycles. The UK’s settlement cycle is currently misaligned with the cycles in jurisdictions (such as the US) which have already transitioned to T+1 settlement,
• The transition to T+1 should catalyse firms’ investment in automation and standardisation, leading to lower settlement costs in the medium term and more efficient markets.

Challenges

Despite these many benefits from transitioning to T+1, there are a number of challenges which will need to be addressed:

I’ll focus on two of these challenges: adapting to multiple time zones and standardising and automating settlement instructions.

UK financial markets serve a host of domestic investors, issuers and intermediaries.

But they also serve market participants around the globe: international participants which are located in a multiplicity of time zones.

In light of the international character of UK markets, the industry group tasked with leading on the T+1 transition, the Accelerated Settlement Taskforce (or “AST”) – a group incorporating institutions from the sell-side, buy-side and infrastructure providers is alive to this challenge.

The AST has laudably sought to consider the needs of both UK-based participants – as well as the needs of the many market participants based in other countries and other time zones!

And a shortening of the UK securities settlement cycle will mean that UK financial market participants will need to make corresponding adjustments to their processes and systems.

This cycle shortening (unless carefully planned and executed) runs the risk of creating challenges for market participants such as investors and intermediaries which are many time zones away.

Adding to the complexity here is the fact that participants in other time-zones will often have an “FX leg” and FX settlement to organise in addition to organising the settlement of the underlying securities purchase or sale.

Unless carefully managed, there’s a risk that participants in other time zones will struggle to meet the opening hour windows for settlement instructions and related communications with settlement platforms (whether for FX or securities settlement).

In light of this risk, we are pleased that the Accelerated Settlement Taskforce has set out an approach which should make it technically feasible for participants in other jurisdictions to accomplish the steps needed in time to permit settlement to occur within the T+1 timeframe.

Another important area of challenge relates to the slightly “niche” topic of settlement instructions:

Settlement instructions are an important part of the settlement process.

Buyers and sellers submit these instructions to the CSD (or centralised securities depository) a key step in the settlement process enabling settlement to occur.

But for many years, the industry has recognised issues with these instructions, in that settlement processes can get “snarled up” and even fail due to instruction formats not being standardised and instruction submissions not being automated, often involving manual processes.

Given this, we applaud the efforts of the industry – and in particular, the efforts of the Financial Markets Standards Board (or FMSB):

The FMSB’s recent publication of standards and templates for settlement instructions^footnote[4] is a very welcome step towards resolving this issue. This publication marks an important milestone in making the settlement process more efficient and operationally resilient.

Market participants should read the FMSB report and adopt their recommendations.

What T+1 means for Financial Market Infrastructures (FMIs)

Having touched on the benefits and some of the challenges of a move to T+1, I’d like to turn now to the topic of today’s event: namely the implementation plan published by the Accelerated Settlement Taskforce:

A plan which effectively charts out how the UK industry can safely transition to T+1 settlement.

The AST has set out in their plan what needs to be done by when for a smooth transition to T+1.

For example, among the “critical actions”, the report calls for Financial Market Infrastructures (FMIs) to review all existing procedures, policies, and technology to ensure that there are no barriers to T+1 settlement.

And among the report’s “highly recommended” actions is a direction for FMIs to ensure that their rulebooks are amended to accurately set out the updated T+1-compatible FMI systems and processes.

Another highly recommended action is for the industry group and the UK CSD to define and publish a target rate for settlement efficiency.

As the supervisor of FMIs, the Bank has an important role in making the UK’s transition to T+1 a reality.

As you will know, FMIs play a vital role in the UK’s financial system. They provide the critical “plumbing” which allow for financial markets to function. And they ensure that the flow of payments and securities related to trading, issuance and other market activities occurs reliably and efficiently, managing risks and providing confidence that financial transactions will be completed safely. This confidence is an engine for growth as businesses take investment decisions and plan their futures accordingly.

The UK’s move to T+1 is aligned with the Bank’s primary and secondary objectives of protecting and enhancing the stability of the financial system of the UK, and facilitating innovation in the provision of CCP and CSD services with a view to improving the quality, efficiency and economy of the services.

The Bank as FMI Supervisor

As FMI supervisor, the Bank expects relevant FMIs to prepare for and implement necessary changes for a move to T+1, maintaining operational resilience throughout, changing their rules and systems, and facilitating preparations by their members.

All of these things are commensurate with the central roles FMIs play in the UK financial system.

As the report indicates, a successful transition will be made more likely if firms (sell-side firms, buy-side firms, FMIs and others) automate their settlement processes and systems (some of which (as I mentioned earlier) are still surprisingly manual in nature!).

In the weeks ahead, I encourage firms, their senior executives, and boards to prioritise this work and seek the necessary budget for system adaptations.

And after these adaptations are implemented, firms must test and mitigate any issues arising from these adaptations and any new process flows well ahead of the transition date.

I’d like now to say a word or two on the topic of “Alignment”.

As HMT, AST and others have said, it would be desirable for the UK and other jurisdictions (including, for example, the EU and Switzerland) to coordinate and align timetables on the transition to T+1.

There are obvious benefits to alignment and we are pleased that the UK, EU and Swiss are working towards transitioning on the same date – 11 October 2027.

We are pleased that both the UK Government and the European Commission have proposed that transition happen on 11 October 2027. This is evidence of a desire to align.

The road ahead

In the coming couple of years, market participants and FMIs will be executing their
firm-specific T+1 project plans – in line with the recommendations set out in the report.

And the Bank looks forward to continuing to actively engage with this workstream by acting as an observer on the Accelerated Settlement Taskforce and by engaging with the relevant FMIs we supervise – and having discussions about FMIs’ preparations for transition.

As a concluding comment I’d like to be clear that FMIs and market participants need to do four things:

1. to carefully read the implementation plan;
2. to produce their own firm-specific project plans;
3. to obtain the necessary funding to execute their project plans; and lastly,
4. they should implement and test the changes to their systems and procedures in accordance with the timelines set out in the report.

The Bank is committed to supporting the UK’s transition to T+1, which is an important innovation that supports financial stability and growth and ensures UK financial markets remain among the most resilient and efficient in the world.

Thank you.

I’d like to thank Charles Gundy, Barry King, Shane Scott, and Michael Yoganayagam for their assistance in preparing these remarks.

Source: Bank of England