FCA Stands Ready to Take Action Against Unprepared Firms by T+1 Deadline
In a significant move towards modernising the financial sector, the UK and Europe are set to implement T+1 securities settlement by October 11, 2027. This change, which shortens the settlement cycle from two business days to one, requires careful planning and preparation from market participants.
Recent events, such as the industry gathering hosted by EY, have highlighted key steps for firms to follow in their preparations. These steps, based on the FCA’s Implementation plan and industry advancements, include:
- Budgeting for System Upgrades: To speed up post-trade processing and settlement workflows, firms should allocate resources for system upgrades. This will support transactions that must now settle one business day after the trade date.
- Engaging and Coordinating with Counterparties: Early and ongoing communication with counterparties, custodians, and service providers is crucial. Through rigorous testing and review of agreements, firms can ensure interoperability on a T+1 basis.
- Automating Post-Trade and Settlement Activities: Automating these processes where possible will help firms fit within the compressed operational window. The reduced settlement cycle could shrink from 24 hours to as little as 2-4 hours for some processing steps.
- Reviewing and Revising Internal Processes: Firms should review and revise their operational processes and risk management, including collateral and margining, given the lower counterparty risk and the demand for faster workflows.
- Monitoring Regulatory Updates and Participating in Industry Initiatives: Keeping abreast of regulatory updates and participating in industry initiatives, such as the Accelerated Settlement Taskforce (AST) led by the UK Treasury, is essential for staying informed and sharing implementation guidance.
- Engaging in Client and Stakeholder Communications: Firms should communicate proactively with their clients to support awareness and preparedness across the value chain. The FCA has made it clear that it will intervene if firms fall behind in their readiness.
- Learning from Precedents: The US move to T+1 in May 2024 provides valuable insights into operational challenges and mitigation strategies.
These steps reflect the FCA’s approach, which combines support and enforcement to ensure market readiness by the deadline. Firms that have already identified changes (approximately 87% as per recent polling) should accelerate implementation, testing, and client engagement to meet the October 2027 deadline.
The importance of automation for an efficient settlement process was also a key topic of discussion at the event. Market participants have plans to support automation in their preparations for T+1.
The FCA's role in T+1 preparations is supportive, but it will act if firms are not prepared for the October 2027 deadline. Firms are also responsible for communicating about T+1 to their clients, as part of a broader market initiative.
In summary, preparing for T+1 requires early investment in systems and automation, robust cross-market collaboration, operational redesign, and proactive regulator and client engagement to achieve a smooth transition to the accelerated settlement cycle across UK and EU markets.
- To optimize their operations for the upcoming T+1 securities settlement, firms must consider automating post-trade and settlement activities, as this will enable them to efficiently fit within the compressed operational window, potentially reducing processing steps from 24 hours to as little as 2-4 hours.
- In the lead-up to T+1, it is critically important for businesses to engage in discussions about technology, as various advancements in technology will play a key role in ensuring a smooth settlement process and supporting market participants' preparations.
