The UK’s move to T+1 settlement is not a “slam dunk” despite firms being able to draw on experience from the US and other markets that have already made the transition, according to Andrew Douglas, chair of the UK Accelerated Settlement Taskforce.
Speaking to Global Custodian, Douglas said the UK had a clear “second-mover advantage”, with many firms operating across markets including the US, Canada and Mexico, which moved to T+1 in 2024.
That experience has helped firms understand what is required for a shorter settlement cycle and put them in a stronger position ahead of the UK’s transition.
“Many of the firms that operate in the UK also operate in the US, Canada, Mexico, or other jurisdictions that moved to T+1 in 2024. I think that experience has helped get people’s heads in the right place for the move ahead.
“Just because you completed the US move, it doesn’t necessarily mean the UK move is going to be a slam dunk. You still need to do the work and the research,” he said.
The UK is also approaching T+1 from a different starting point, with the transition increasingly tied to the wider digitalisation of post-trade infrastructure.
Douglas recently asked an AI chatbot to compare the US and UK approaches to T+1, expecting it to highlight differences in settlement models, including the UK’s use of partial settlement.
He said: “I was expecting it to simply say that, in the UK, we already use partial settlement, whereas in the US it was a single-sided obligation compared with the dual-sided obligation here.
“Instead, the AI characterised the US transition as a “timeline compression exercise”, while describing the UK move as an opportunity to “strategically redesign the back-office. And I think that’s part of the reason why we have seen stronger engagement earlier on.”
The shift reflects a broader industry focus on using T+1 to modernise post-trade operations, rather than treating it solely as a deadline to compress settlement.
“People recognise that, at its heart, this is about future-proofing your back office through greater use of technology. Everyone is talking about AI, everyone is talking about the digital market agenda, and this fits into that broader conversation.”
Settlement efficiency under scrutiny
Meeting the 11 October 2027 deadline is only part of the challenge. Once T+1 goes live, firms will also be judged on how reliably they can settle within the shorter timeframe.
The incentive to improve settlement rates is ultimately financial, with failed trades creating additional costs for firms and adding to the operational burden of resolving them.
“Don’t forget, there is a cost associated with fails. This is a simple matter of economics. The more efficient your settlement process is, and the higher your settlement rate, the less cost and penalty there is to operating in this market,” Douglas said.
That pressure could increasingly extend into firms’ commercial relationships.
Counterparties with automated and efficient settlement processes are likely to become more attractive as firms look to reduce the risk of failures under T+1.
“Firms have already told me from the start of this process: when T+1 goes live, they will only want to do business with firms that are compliant because they know those firms will have automated processes and will be efficient counterparties,” he said.
For firms that consistently struggle to settle on time, the consequences could go further still, with poor settlement performance potentially attracting greater regulatory attention.