The Future of Accelerated Settlements in the UK

On Thursday 28 March, His Majesty's Treasury published a report with key considerations for the UK to move to a T+1 settlement cycle and a recommendation that the transition is completed by end of 2027. Having been involved in the taskforce since its inception, we believe there are a number of  ‘no regret’ steps that market participants can and should be taking now – for the UK and also for T+1 in the EU which is very likely moving closer too.

There has been plenty of debate recently around the trajectory of Accelerated Settlements in the UK and Europe, including whether the UK should move to quickly align with the US or move in conjunction with Europe. The recommended UK transition date allows for planning, investment, and implementation, as well as to learn from the US move and prepare for any unanticipated challenges. Whilst the UK date is still subject to the findings of a technical taskforce and official processes, it seems clear that the UK is moving closer towards a T+1 environment, and that market participants should be acting to start assessing readiness and planning (with many already pivoting to this as US T+1 moves to go live in May).

In parallel with the focus on T+1, in October 2023 the Association for Financial Markets in Europe (AFME), supported by a team from Deloitte, produced a report with recommendations and next steps for improving settlement efficiency across Europe – and whilst this deliberately doesn’t explicitly focus on T+1, the considerations that it raises are very relevant.

The report highlights that whilst issues related to market standards, regulation, and financial market infrastructure limitations play a role in impacting settlement efficiency, the principal direct drivers of settlement inefficiency relate to counterparty behavioural factors, data quality issues, and inventory management issues. AFME developed a set of recommendations to address these issues, including reducing exceptions, expediting exception resolution, and optimizing settlement of available inventory – all these are things that should be focus areas in moving towards T+1, and particularly in dealing with the greater disparity and complexity of European markets compared to the US.

Additionally, as we’ve blogged and said before, organisations can start to capture benefits of modernising settlement processes by using the right tooling and data techniques, such as:

• Leveraging process mining capabilities and benchmarking data to extract, monitor, and analyse data and gain insights into end-to-end processes;
• Integrating with comprehensive cost analysis, scrutinising costs associated with the settlement cycle and uncovering potential opportunities which could lead to cost efficiencies; and
• Employing digital tools to enhance process transparency, supporting data-driven decisions about how and where to improve the settlements process.

Deloitte uses such tools and techniques to help clients analyse vast quantities of data and detect process and cost inefficiencies, so businesses can more effectively implement opportunities to modernise.

Stay tuned to our T+1 blog series for more on the progress of implementing Accelerated Settlements across Europe and North America, and reach out if you would like to have a more tailored discussion.