Preparing for pan-European T+1 settlement: latest developments and industry insights

At a glance

• The UK and the EU have committed to implement the securities settlement transition to T+1 on 11 October 2027 and align as much as possible in the process. Firms will now need to plan and budget for an extensive multi-year transformation to meet the deadline.
• The UK Accelerated Settlement Taskforce (AST) has published its final recommendations, quickly endorsed by the government and the regulators, and the European Commission has submitted its proposal to amend the Central Securities Depositories Regulation (CSDR) requiring firms to settle trades at T+1.
• While the pan-European T+1 transition date has been confirmed, the specifics in some areas are expected only later in the year, leaving firms with the challenge of planning and budgeting for implementation without the full picture. As UK, EU, and Switzerland have committed to a fully aligned transition, the UK AST report with its detailed operational recommendations can serve as a helpful planning guide for EU firms. For UK firms, the actions and recommendations will more directly need to feed into plans, which will be subject to regulatory scrutiny.
• In this blog we outline the current state of play focusing on the nuances that still need to be confirmed and share five critical insights to guide firms’ T+1 transition planning.

Part 1: The current state of play

In the UK, the Chancellor has endorsed the AST’s T+1 transition proposal and will bring forward legislation to amend UK CSDR. The government accepted all the AST’s recommendations which include 12 critical actions, 26 highly recommended actions and five expected behaviours to be implemented by all market participants to ensure a smooth transition.

Similarly, the EU is progressing with its T+1 transition. The European Commission has delivered the legislative proposal for the transition, which will now be submitted to the Parliament and the Council as part of the standard legislative procedure. The EU T+1 task force and ESMA are expected to publish their guidelines for the EU's transition in their respective reports, due in Q2 and Q3 2025. Although the final transition date has been confirmed, some details are still being developed:

Scope:

The AST recommends a comprehensive scope for the UK transition encompassing all UK trading line transactions (e.g. where both trading and settlement are on a UK venue), including those not currently captured by the UK CSDR. But it also proposes a number of permanent exemptions for: all Securities Financing Transactions (SFTs); other instruments which are non-GB issued or settled in a non-UK CSD; and temporary exemptions for Eurobonds and Exchange Traded Products (ETPs) until the EU transitions to T+1 in the unlikely event of transition timing misalignment.

The European Commission's proposed targeted amendment to CSDR aims to implement T+1 without altering the existing scope – it could lead to discrepancies with the UK's scope, particularly concerning SFTs, including repos. However, ongoing discussions and a strong desire for harmonisation between UK and European jurisdictions suggest that a more aligned approach to SFTs is likely to emerge.

According to the Commission’s report, some Member States are also open to extending the T+1 scope but only after undertaking further analysis. Firms will need to monitor these developments closely.

Settlement schedules:

The timeline for confirming settlement schedules and instructions varies between the UK and the EU. In the UK, Euroclear UK & Ireland is expected to publish the CREST modernisation programme and planned enhancements in Q2 2025, providing a clear timeframe for firms to adjust their settlement processes.

However, the EU's landscape, with its 26 CSDs and over 300 trading venues, presents a more complex coordination challenge. Finalising settlement schedules and instructions within the EU may require a more extended timeframe.

Further workstreams:

Derivatives: although the UK AST work has largely been completed, certain workstreams are still ongoing. For example, the UK AST is engaging with the derivatives industry in 2025 to assess the application of T+1 to cash-settled exchange-traded and OTC derivatives. It is unclear if this will result in any actions for the industry. Derivatives were not in scope for the US transition and are not discussed in the EU reports.

Testing: while the UK AST has set a target date of January 2027 for industry-wide T+1 testing readiness, the specific system testing approach and arrangements are still under development and expected to be finalised in 2025. The final design of the industry-wide testing process for T+1 could have implications for the specific changes firms need to implement and the associated costs. Firms have the flexibility to establish internal T+1 testing environments ahead of the deadline.

Open-ended funds: in addition, there are some recommendations which are not essential but highly desirable for a smooth transition, such as the proposed shift of settlement for open-ended funds from the current T+3/T+4 to T+2. This shift would align the fund settlement cycle more closely with the securities settlement cycle, potentially mitigating CASS risks. However, fund managers will need to consider carefully the diversity of investments and regions with varying settlement cycles represented in their mandates.

Other ongoing initiatives: the AST report goes beyond immediate T+1 implementation by proposing other enhancements to benefit the industry. These include initiatives such as the consolidated tape for equities, after-hours trading, digital identities for non-natural persons, and digital KYC. While these measures aim to enhance the UK market's operational efficiency, including in some cases trade processing and settlements, their realisation is outside the AST’s remit and depends on government and financial services regulators' priorities. Therefore, the implementation timeline for these workstreams remains uncertain.

Despite those uncertainties, financial institutions now have sufficient information to initiate their T+1 transition planning. Firms could leverage the AST report as a foundation for a pan-European approach.

Part 2: Industry insights

Based on extensive industry discussions, we have set out five important insights to guide firms' strategic planning for the T+1 transition:

1. The T+1 transition will affect all market players from the smallest FMIs and asset managers to the largest international custodians. While each firm's transition plan will be unique, reflecting its specific settlement practices, business model, and counterparty landscape, all firms must be prepared to transition by the deadline of 11 October 2027 at the latest. Some firms, such as FMIs, will have to act earlier to assess their existing infrastructure to identify any potential blockers for T+1 settlement (by Q4 25) and implement necessary changes to their systems and procedures (by Q4 26).
   
   While some firms may believe they possess robust T+1 settlement capabilities due to their experience with the US transition, it's essential to recognise that the overall success of the transition relies on the preparedness of all parties in the settlement chain. Simply having the individual capability to settle on T+1 does not therefore equate to being fully prepared.
   
   Therefore, firms must prioritise client engagement and education to support a seamless transition across the entire value chain, rather than focusing only on their internal capabilities. Firms must pay close attention to their international counterparties, particularly those operating in jurisdictions with different settlement cycles or requiring an FX conversion. These variations are likely to pose challenges during the T+1 implementation process.
2. Positive behaviours will drive success. The AST report highlights five key behavioural changes across all market participants that will be key to a successful transition. These include a commitment to: automation; readiness for testing; compliance; a commitment to act with urgency on implementation - “action this day”; and settlement discipline. Embedding these behaviours throughout the organisation requires strong leadership and a clear "tone from the top", set by senior management. While some behaviours may be easier to adopt than others, consistent reinforcement and communication across all five are essential for a successful transition.
   
   As part of our engagement with the industry we ran a short survey on adoption of the five behaviours. Commitment to automation came out as the most difficult to adopt throughout the organisation. This is understandable given the significant scale and complexity of the transition. To enhance settlement process efficiency, firms must adopt a holistic approach that encompasses the entire trade lifecycle. Timely and accurate information flow from the front-office and middle-office systems is essential to empower the back office to complete settlements promptly.
   
   The successful implementation of T+1 in the US market highlighted the critical role of technology adoption. Firms that did not prioritise automation faced significant cost increases, with staffing expenses initially rising by 6-18% to manage the transition.¹
3. Planning and budgeting need to happen in 2025 to fund and execute implementation in 2026, which our survey indicates will be the most demanding year of the transition. A preliminary assessment of the extent of Target Operating Model change across front, middle and back office is essential. Substantial technological enhancements and automation across these areas may be required.
   
   Firms with a year-end different from December should proactively incorporate T+1 testing into their planning and budgeting cycles in 2025, even though industry-wide testing requirements are still being finalised.
   
   The extensive nature of changes required come at a significant cost. The ESMA report cites an aggregated estimate for transition for all custodian banks of between EUR 1.6 and EUR 5.3bn and related ongoing costs of EUR 265m per year. Per firm, however, the transition cost could vary considerably depending on business models, the state of their current settlement systems, CSD and CCP connectivity etc. Two major EU banking groups estimated that the cost of operational changes in the EU could vary between EUR 4m and EUR 10m². However, depending on specificities of individual transition plans some firms may incur higher costs.
   
   To ensure a cost-effective transition thorough planning and budgeting are essential. Firms must prioritise establishing a robust governance structure, including a dedicated accountable senior manager and senior representatives from business and functional areas, to oversee the transition effectively.
4. Plans will be heavily scrutinised. With changes to CSDR, settlement at T+1 will become mandatory. In the UK, the BoE and FCA have endorsed the AST’s recommendations and clearly communicated their expectations around timely compliance. The BoE, which supervises FMIs, expects them to play a critical part in supporting the transition. The expectation is broader than the need for them to maintain operational resilience and a low level of settlement fails. It includes FMIs reviewing their own processes and finalising settlement instructions early. It expects FMIs to implement system adaptations and resolve any issues “well ahead of the transition date”³.
   
   The FCA expects transparency on how firms’ plans and actions align with the AST’s recommendations and will be monitoring the market’s transition efforts, intervening as necessary if they “see actions or inaction that would harm market integrity.“⁴
   
   Both regulators will be engaging with the industry on a continuing basis throughout the transition period to ensure timely compliance. Firms should anticipate rigorous scrutiny of their individual transition plans to ensure alignment with regulatory expectations.
   
   Based on past experiences with large-scale transformations, such as the LIBOR transition, where the FCA issued multiple Dear CEO/SMF letters, we anticipate similar proactive communication from the FCA and BoE regarding T+1. It is highly likely that they will reiterate their expectations and provide guidance through a series of Dear CEO/COO letters over the next two years.
5. Build with the future in mind. The transition to T+1 is a significant multi-year undertaking for all market participants, demanding comprehensive changes across front-to-back operational areas and systems. Our experience with the US T+1 transition clearly highlights that treating this as a tactical project to meet the go-live deadline can lead to significant post-implementation activity to embed a more efficient long-term solution.
   
   The transition also presents a valuable opportunity to think strategically about future enhancements. Firms can increase the return on their investment by futureproofing their transformation to accommodate potential developments such as instant settlement or leveraging technological upgrades to achieve other enhancements such as adoption of digital assets, and tokenisation. These initiatives share common goals with T+1, including providing faster settlement, streamlining upstream and downstream processes, enhancing the entire trade lifecycle and reducing settlement risk.
   
   However, if firms choose to undertake additional technological upgrades alongside the already demanding T+1 transition, it is crucial to implement robust risk management frameworks to identify and mitigate potential execution risks.

Conclusion

The transition to T+1 settlement in Europe represents a significant undertaking for all financial market participants. While the 11 October 2027 deadline may seem distant, the complexity of the changes means that firms have to start planning now.

The opening quote in the AST report elegantly captures the need to act soon - “there is no greater harm than that of time wasted”, Michelangelo.

Although the EU and Switzerland clearly intend to align with the UK, firms should be prepared for bumps on the road, such as short-term misalignments and/or a potential lack of readiness in some areas, resulting from the complexity and more fragmentated nature of the EU’s capital markets.

By viewing the T+1 transition as an opportunity for broader technological advancement, firms can emerge from this transition more resilient, efficient, and better positioned for a possible move to instant settlement in the future.

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References:

1. T+1 Pulse survey (Sep 2024)
2. SWD/2025/37 final
3. Innovation in UK Financial Markets - shortening the settlement cycle – speech by Sasha Mills | Bank of England
4. Our T+1 journey starts now | FCA