T+1 is coming: Will you and your data be ready?

The UK, European Union and Switzerland are committed: markets will move to mandatory T+1 settlement on 11 October 2027. Yet with market-wide testing between counterparties, custodians and infrastructure providers scheduled for Q1-2 2027, in practice the real compliance deadline is this December. That’s right – not much more than six months off. Cue cold sweats.

Hugely compressed settlement window

The shift from today’s T+2 environment to T+1 may seem like a halving of the time available to settle in-scope trades. Instead, the UK Financial Conduct Authority warns T+1 will drastically compress the trade lifecycle, cutting the window you have to process transactions by around 80%.

And a lot has to happen in this settlement period.

T+1 leaves approximately 12-14 hours for trade allocation, confirmation the buyer has sufficient funds and the seller the securities to complete the trade, and instruction submission, observes The Investment Association. To meet the schedule, firms will be expected to complete allocation and confirmation by 23:00 CET on trade date (T+0) in the EU market and 23:59 UK time for the UK. This capability should be in place by the end of December this year.

Securities lending recalls must move to T+0. FX funding will be similarly compressed, with cut-off times for payment vs. payment (PvP) mechanisms, such as CLS, requiring instructions to be executed and transmitted by 23:59 CET on T+0. “Failure to instruct and manage FX within these windows increases the likelihood of overdrafts, liquidity shortfalls, and settlement fails,” notes the IA.

“Today, under T+2, there is ample time to resolve errors, but T+1 settlement eliminates this buffer entirely,” it adds.

The IA, AIMA, PIMFA and FCA have also called for fund settlement cycles to be shortened to T+2 by October 2027. The concern is that misalignment between a fund’s portfolio trades settling T+1 and the investor subscription/redemption cycle occurring on T+3 or T+4, as is common at present, will create potential liquidity and operational mismatches. The FCA considers T+2 fund settlement to be in investors’ interests and consistent with the Consumer Duty.

Automation is the only option

Successfully transitioning to T+1 in the UK and European markets depends on automating the transaction chain. Relying on extra staff to support manual arrangements will increase operational costs and the risk of penalties for late settlement, cautions the FCA. “Automation can help improve efficiency and keep costs down.”

The IA advocates adopting tools such as automatic trade release upon execution, automated allocation based on pre-defined rules, and real-time confirmation matching.

Process automation will only be effective though if it is fuelled with accurate data.

Strong data foundations

Strengthening foundational data – particularly the accuracy, completeness and consistency of Standard Settlement Instructions (SSIs) – will be central to reducing friction across the value chain, not least for cross-border and multi-listed securities.

A 2023 Association for Financial Markets in Europe (AFME) report identified data quality issues – such as SSI and place of settlement (PSET) data – as the most common causes behind settlement fails. As the IA notes: “Accurate SSIs are essential to avoiding preventable matching errors and settlement fails, which become significantly more costly and operationally disruptive under T+1.”

The PSET indicates the central securities depository (CSD) through which settlement will occur, and thus the applicable settlement rules, operating hours and cut-off times. A recent AFME, UK Finance and IA joint paper recommended PSET data be included at the point of allocation by both buy- and sell-side counterparties in all allocation methods to support straight-through processing (STP) and enable early detection of discrepancies between counterparties.

PSET must also be harmonised with place of safekeeping (PSAF), which defines where securities are held, to ensure no misalignment between the desired settlement and actual custody locations.

Remediate data to minimise settlement fails

Strengthening STP to meet condensed process timelines rests on firms identifying and remediating “systematic reasons for trade mismatches,” observes the IA. That “can often be addressed by a data clean-up exercise or improved trade system data validation to ensure complete information, such as avoiding missing identifiers on original trade tickets.”

Trouble is, with so much data to manage and processes accelerating, how can you keep up with your data remediation demands? Manual data checking and fixing methods that industry participants have relied on for years are clearly no longer fit for purpose.

Automated data quality tools that embed always-on data checks and remediation into daily operations will be essential. Checking data at source and across systems ensures inconsistencies, missing data and errors are identified immediately, stopping them from travelling downstream and causing delays. Flagged problems can be fixed fast to minimise fails, while highlighting ways to optimise workflows to prevent issues from recurring.

No one can afford to fail

Shifting to a T+1 environment is not optional, and any failures won’t be treated lightly.

The FCA may take supervisory action against firms that make inadequate preparations, the IA warns. Settlement fails also become “materially more costly under penalty regimes in the UK and EU.” That will have a direct P&L impact and create a substantial operational overhead for tracking, disputing and managing buy-ins or penalty allocations between counterparties, it adds.

With the EU expected to release lists of the worst failing counterparties, the accompanying reputational risk could also affect market interactions, leaving firms perceived as weak links shut out of transactions.

Don’t let that happen to you. Automation – of data remediation and transaction processing – is the only way to go. And soon.