T+1 in the UK: ignore the clock

The UK Accelerated Settlement Taskforce is charged with reporting on and making recommendations regarding shortening settlement cycles to T+1. This is more relevant than ever as the US and Canada prepare for their own go-live in May this year. So it was unsurprising when the Chair of the Committee, Charlie Geffen, confirmed late last year that the UK’s report will be delayed until Q1, but that the question is not whether or not the UK will switch to T+1, but rather how and when it will do so.

Now we know -  T+1 is happening. What’s less clear, and where debate is raging, is whether the UK should align more closely with the US and implement T+1 relatively soon. Or should it wait, and align with the EU? There are pros and cons to both arguments, but for many firms in both Europe and the UK, an important consideration is understanding the impact on cross-channel trading if T+1 implementation is handled separately. This suggests that a unified, lockstep approach between the UK and EU is more appealing.

Either way, as the US and Canada go live with T+1, regulators and market participants in the UK and Europe will be watching closely, with the goal of using the experience to inform local decision making and implementation processes. Any learnings or shortcuts to success are particularly welcome in the EU where the requirements of T+1 settlement are inherently more complex: regulators and stakeholders are highly aware that with 18 clearing houses and 31 CSDs, T+1 is not simple in the European economic zone. 

Manual processes are the top T+1 barrier

What’s undeniable is that whether the UK pushes forward with T+1 in the relatively short term or chooses to wait and work with the EU to drive parallel timings and processes, firms can’t meet reduced settlement times without existing time-consuming and manual processes. They need high-quality data and extensive automation. We already know the market is concerned about this – ahead of the US and Canadian implementation, 20% of respondents in a Coalition Greenwich survey said they were not sure they would be ready, and 75% said they had doubts the market could achieve it. It’s likely similar concerns would be present in the UK or EU.

Key to the problem is the reliance on manual processes. The same Coalition Greenwich report highlights that manual data cleansing processes are used by almost two-thirds of the market for 10% or more of their data. This is not just inefficient, it’s a shortcut to errors, which will inevitably require additional manual, and time-consuming, remediation efforts. Removing manual touch points, particularly as a result of unstructured data and sub-optimal processes, will be essential to achieve straight-through processing and T+1 settlement times.

With unstructured data a growing challenge for firms, the use of technology is the only realistic answer to meeting T+1 deadlines. In reality, no matter what T+1 looks like – what rules will be implemented or what will be in scope – the market already knows where the fails are likely to happen. They’ll take place when trade processes are delayed by poor data, low-quality reconciliation processes, and slow remediation – all issues that arise from the constantly growing data volumes, much of it unstructured, and a lack of effective, fit-for-purpose process automation.

The good news is that many firms are already working on this. It’s important to them not just for possible future T+1 deadlines, but also because trading is more efficient, and more profitable, and the service they provide to their clients is improved when they achieve straight-through processing. We see it with clients with whom we’ve worked for years to automate and streamline processes such as affirmations, confirmations and allocations. As they get closer to real-time processes, their business operations, efficiency, customer service and, ultimately profitability, are all improved.

Best practice is best practice, timing is irrelevant

A move to T+1 settlement in the UK and/or in Europe will be a major change, and it will take effort. But realistically, there’s no doubt that this is the way the market is moving and that in fact, for many of the world’s largest firms, even quicker trade processing is their goal. We will leave it to the regulators and others to decide on the best way to do this, and the preferred timing, but we’ll continue to highlight that no matter what, firms that remove their manual, time consuming processes now, who find better ways to work with their increasing volumes of unstructured data and who automate their processes will be guaranteed to be well on the way to meeting any T+1 deadline that’s imposed. 

This article first featured in The Trade.