T+1 settlement: UK’s progress so far

This blog will outline UK’s progress to T+1 based on the draft recommendations issued by the Accelerated Settlement Taskforce.

The Accelerated Settlement Taskforce (AST) was put in place in 2022 to assess the implications of the UK moving to a T+1 settlement.

So, what progress has the UK made so far?

On 27^th September 2024, the AST published a report of draft recommendations for consultation. Recommendations of three main types were set out: recommendation zero, principal recommendations and additional recommendations.

All of which, aim to provide clarity on what you need to do to prepare for T+1 and when to do it by.

UK’s commitment to T+1

The AST and UK Government have already agreed that the UK should move to T+1 settlement no later than 31^st December 2027.

The UK government also agreed that certain operational changes to facilitate the transition to T+1 should take place by no later than 31st December 2025.

So, the T+1 settlement transition is well underway, and UK firms should act sooner, rather than later.

Understanding recommendation zero

Recommendation zero states the scope of UK’s transition to T+1 – there are 2 scenarios:

1. UK implements T+1 independent of other jurisdictions
2. The UK, European Union and Switzerland migrate to T+1 together

AST’s principal recommendations

The paper also sets out principal recommendations – these define crucial post-trade activities that firms must complete to successfully transition to T+1.

Of the 43 principal recommendations, process automation is listed as a key area of importance.

As the paper highlights, the consequences of not automating include higher (headcount) costs and increased levels of exception management from manual processing.

Notably, the report states that “recent reviews of the US T+1 implementation suggest that insufficient focus was given to automation leading to firms post implementation having to deal with increased volumes of manual processing and exception management.”

Recommendation LEL 03.00 seeks to mitigate these operational risks by calling for fully automated processes, where appropriate, to reduce the processing time needed for T+1.

So, the recommendation places emphasis on automating manual processes and identifying opportunities to leverage alternate technologies or vendor tools – tools such as AutoRek.

Evidently therefore, automation is key.

For firms to meet the requirement to transition to T+1 and reap the benefits, they must automate where appropriate. And while progress to T+1 has been made, there is still work to be done, particularly when it comes to automating manual processes, such as reconciliations.

Additional recommendations – environmental issues

The report goes on to list 14 additional recommendations that specify the environmental issues that need to be addressed if the UK is to maximise the efficiency gains that T+1 can deliver.

However, these additional recommendations are not essential to the successful implementation of T+1.

Key insights

• The UK has made progress towards the transition to T+1 settlements, with the establishment of the AST and the draft recommendations report and consultation 2024. However, there is still work to be done.
• Automation is key to implementing the recommendations set out in the report and should be a key area of focus for firms who wish to successfully transition to T+1 and reap its benefits.

Key reminder – the consultation is open for responses until 31^st October 2024, with final recommendations expected to be confirmed at the end of 2024.