T+1 should not be seen as merely a compliance exercise that can be delivered by regulation alone, said Birgit Puck, chairperson of the Market Standing Committee at the European Securities and Markets Authority (ESMA). Speaking at the recent EU T+1 Industry Committee event in Frankfurt, she shared what’s to be expected in the next phase of the transition – from both the authorities and market participants.
With the European Commission’s regulatory framework now completed and the recent publication of ESMA’s revised guidelines on allocations and confirmations, market participants should now be well-equipped to understand the requirements of the transition.
The next phase should thus be implementation and supervision – and it begins in December this year, Puck reminded the audience. Firms and their clients will have to start complying with the new requirements on allocations and confirmations while national competent authorities (NCAs) will “move into supervisory mode”.
Top-down
Specifically, the NCAs will monitor overall market readiness with a focus on critical dependencies, implementation risks, and readiness gaps across sectors and jurisdictions.
“We will assess not only whether firms have upgraded their policies and procedures, but also whether the new arrangements work effectively in practice,” she says.
Testing will play an important role in this process, with a clear goal – to identify problems when there’s still time to fix them. Supervisory attention will focus on areas where risks remain highest.
Puck also emphasised that coordination isn’t limited to the markets within the EU. “The cooperation between the EU Industry Committee, the UK Accelerated Settlement Task Force, and the Swiss Securities Post-Trade Council has already produced valuable alignment, particularly in the area of testing. And as we approach the transition date, maintaining that alignment will be essential. Our objective is a smooth transition across the region, which allows cross-border flows to continue to flow safely from day one.”
Bottom-up
For firms, Puck listed a few expectations, of which the paramount was to heed the December deadline. “The new requirements on allocations and confirmations are not a rehearsal. They are binding regulatory obligations and an important readiness milestone.”
She warned that “no firm is ready in isolation”. “You need to understand the preparedness of your clients, brokers, custodians, infrastructure, service providers, and technology partners. The key question is not whether your organisation is ready, but whether the organisations you depend on are ready as well.”
And just as with the authorities, testing should be central to the preparations. She advises, “Test early and test broadly. Do not wait for the last of the five coordinated market testing windows. Start internally. Continue with critical counterparties and participate fully in market-wide testing. Experience shows that issues identified early are manageable. Issues identified shortly before go live become transition risks.”