The advent of faster settlement times are set to climb the agenda for corporate treasurers, even though the new regulations are aimed predominantly at financial institutions who handle payments for securities. The UK is set to adopt a ‘T+1’ settlement cycle on 11 October 2027, meaning securities trades will settle one business day after execution. This shift aims to reduce risk, enhance market efficiency, and align with global markets like the US, which moved to T+1 in May 2024.
“Even if you believe that you may not be affected directly by T+1, your treasury operations are still likely to be affected indirectly by the general market trend towards faster, more efficient and more resilient settlement processes,” warned James Winterton, ACT’s policy and technical associate director, speaking at the recent ACT annual conference.
Speaking at the same event, Andrew Douglas, the chair of the UK Accelerated Settlement Taskforce (AST), explained that the current settlement regime of a two-day cycle exposed corporates to counterparty and settlement risk for two days. “It involves tying up capital for two days,” he said. “It doesn’t give you access to your cash for two days, so there is a general trend towards shortening the settlement cycles... China is already on T0, India moved to T+1 four years ago, the US moved to T+1 in 2024, and we are moving to T+1 in October 2027.”
And he agreed with Winterton, saying: “Don’t assume that this seems interesting, but it doesn't impact me. It will impact you if you have any connection with any of the firms [directly affected].”
The changes to the settlement regime were originally proposed by former chancellor of the exchequer Jeremy Hunt in his so-called ‘Edinburgh reforms’, as part of a series of actions his government believed were necessary for the UK to remain competitive in the global financial services market. It was subsequently agreed that the transition date to T+1 would be 11 October 2027, with the EU and Switzerland switch on the same date.
Participants should engage early and regularly with everyone who’s involved with their settlement processes
Heather Pilley, a technical specialist at the Financial Conduct Authority, added that in addition to making financial market more efficient, T+1 would improve liquidity, allow for better use of capital and reduce risks for market participants. “We agree with the government that an aligned move to T+1 across Europe is highly desirable and would minimise costs and operational complexity for market participants and support cross border trading,” she told the conference.
“We would then also be aligned with the US. Further, we have seen the benefits of international coordination, particularly with the EU and the US, extend to engagement between international regulators and between industry groups in different countries on T+1 experiences and plans.”
And she warned that corporates would be impacted by the changes: “You'll receive any sales proceeds more quickly, but you’ll also need to be ready to pay any purchase price more quickly.”
Pilley advised corporate treasurers to carefully read guidance from the AST on preparing for the switch and should plan early by deciding what changes need to be made for T+1 and how to implement them. “You will need to implement the plan you make on a timely basis including allowing for enough time for testing both internally and externally as a part of implementation,” she advised.
“Participants should engage early and regularly with everyone who’s involved with their settlement processes including internal stakeholders such as legal departments and external stakeholders such as counterparties, intermediaries and service providers.”
To keep up to date on T+1 developments, visit UK Accelerated Settlement Taskforce and the FCA's T+1 website.
Philip Smith is editor of The Treasurer