A marathon not a sprint to T+1 in the UK

The move to T+1 needs to be carefully planned and executed, with multiple considerations taken into account, writes Virginie O’Shea, founder of Firebrand Research, as the UK joins the growing list of those looking to shorten the settlement cycle.

There have been numerous announcements over recent weeks about the new recruits to the UK’s Accelerated Settlement Taskforce as various members of the industry have joined the group focused on providing feedback to the UK Treasury on the shortening of the settlement cycle. The team certainly have a job on their hands as they spend the next 11 months gathering feedback for the interim recommendations, which are due to be published in December. However, one of the challenges for the group is gathering the views of the wider industry and not just those of a select group of individuals.

The age-old problem of industry associations and working groups alike is that smaller firms tend not to be able to participate. The firms with small teams of individuals that are struggling to support business as usual from a day-to-day operations perspective are those that will likely be impacted the most, but are often the least engaged. They have scant time to do their day job and therefore don’t have the time or the resources to even reply to direct outreach (I should know, I speak to them for research purposes and it’s really hard to get on their calendars!).

Ensuring that there is wide representation and, even if it isn’t direct participation, the views of smaller firms are balanced alongside those with regulatory engagement teams and the resources to make their voices heard is important. What might seem like expensive but relatively plain sailing from an implementation perspective for one firm, might be a complete nightmare for another. If the UK government is keen for its smaller homegrown banks, brokers and asset managers to keep up with the market in Europe and not be put at a disadvantage, then it needs to listen to this feedback.

These firms are already struggling under the weight of one of the most gold-plated regulatory environments in Europe. Settlement operations are even more challenging because of the Central Securities Depositories Regulation’s (CSDR) penalty regime. The Bank of England noted during a meeting of its Securities Lending Committee in November 2022 that CSDR penalties are much larger than anticipated and failures remain high. According to the discussion, failures are largest by volume in the equity space, but are most common in corporate bond lending. Settlement rates have fallen across all products and CSDR penalties have not made a large improvement thus far.

Settlement efficiency is clearly not where it needs to be at the moment for the implementation of a T+1 settlement cycle. If the move is about signalling the UK’s position as a leading financial services hub, it shouldn’t be at the expense of the firms that are located in the jurisdiction. It can’t and shouldn’t be a sprint to T+1 to match what’s going on in other markets, it needs to be carefully planned and executed. Think of it as a marathon not a sprint.

We’ll be discussing this and a host of other T+1 concerns and challenges at our upcoming roundtable in London on 8 March. It’s open to all banks and brokers (and everything will be off the record) – so come down and get your views heard. Register here: https://marketing.torstonetechnology.com/london-t1-roundtable-event-2023