UK’s T+1 move gets more defined – here’s the overview

Trust in automation and obey the rules – these might be the two keys to success in T+1 transition in The UK (and perhaps the EU and Switzerland). In its recently published consultation report mapping out the country’s transition to T+1, the Technical Group (TGT) formed under The UK’s Accelerated Settlement Taskforce (AST) gives market participants a clearer idea of what the move might look like.

The report categorises its recommendations into three groups: principal recommendations, of which there are 43; additional recommendations, of which there are 14; and Recommendation Zero, the base recommendation.

Standing on its own because it is considered the most important, Recommendation Zero has to do with scope. “A key lesson learnt from the experience of the T+1 implementation in North America is the importance of setting the scope of the T+1 implementation as early in the process as possible,” the report writes.

It predicts two possible scope definitions for the UK. Scope 1 assumes that UK T+1 implementation is independent of other jurisdictions. In this case, ETPs and Eurobonds will remain on T+2 settlement until the EU moves to T+1. Scope 2 applies if the UK decides to align with the EU and Swtizerland. Here, ETPs and Eurobonds will move to T+1 along with the other asset classes.

The 43 principal recommendations “cover the critical post-trade activities you must be able to complete efficiently if the UK’s transition to T+1 and your contribution to that is to be successful”. Additional recommendations are “environmental issues that need to be addressed if the UK is to maximise the efficiency gains that T+1 can deliver but they are not essential to the successful implementation of T+1”.

Road to success

The report emphasises that T+1 success would hinge on automation and the adherence to the post-trade code of conduct.

“Relying on the expediency of adding manual resource should not be considered anything other than a short-term work around whilst automated solutions are developed,” it states. “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.”

The UK might be willing to compromise on the exact date of transition to T+1 for the sake of alignment with the EU and Switzerland, but what it is unlikely to budge on would be the post-trade code of conduct.

TGT members have observed that compliance with market practice, in certain cases, have been rather casual. The group has endeavoured to change this. “To maximise the operational benefit to the UK market and all of its participants, we believe that compliance with the final recommendations should not be optional,” writes the report.

The intention is to create a post-trade code of conduct based on the final version of the recommendations. The code of conduct will be used for supervisory purposes and set expectations of behaviour of all UK market participants.

Responses to the consultation report have to be submitted on or before 31 October 2024.