T+1 in Europe: what’s next for the EU and the UK?

T+1 in the European Union

ESMA’s long-awaited report on the shortening of the settlement cycle in the European Union was published on 18 November 2024.

It follows a joint statement by ESMA with the European Commission and the European Central Bank from 15 October 2024 setting the basis for a governance structure to accelerate the technical work needed to support a future move to T+1 in the EU. This governance will be incorporating the EU financial industry and should be, according to ESMA, inclusive and ensuring a balanced sectorial and geographical representation.

A legislative proposal by the European Commission to shorten the settlement cycle in the EU is expected as a next step. This will be followed by a discussion on the appropriate timing to be settled by the EU co-legislators.

ESMA’s T+1 report: a summary

The ESMA report on the shortening of the settlement cycle was commissioned by the EU co-legislators through CSDR Refit and gave a mandate to ESMA to assess 4 main aspects:

• An assessment of the appropriateness of shortening the settlement cycle in the EU and the potential impacts for market infrastructures and market participants
• The costs and benefits of shortening the settlement cycle in the EU
• An outline of how to move to T+1
• An overview of international developments on settlement cycles and their impact on the Union’s capital markets

While it has proven a difficult exercise to properly document all the aspects of the analysis, it is clear to ESMA that the settlement cycle should be shortened to the first business day after trades have been executed (i.e. from T+2 today to T+1) while a settlement cycle shorter than that (i.e. T+0) could only be envisaged in the longer term.

ESMA considers that a move to T+1 in the EU is a question of global competitivity. Even though the cost/benefit analysis may appear rather incomplete, ESMA is of the opinion that investors might consider EU capital markets somewhat unattractive if the EU chose to stay on a T+2 settlement cycle. The conclusion reached by ESMA seems to be drawn mainly on the benefits of international alignment with other major jurisdictions (especially the US).

Yet, challenges remain for accelerated settlement across the Union. ESMA points out several difficulties, with some being very specific to the EU context, which will have to be addressed in a timely manner if the proposed calendar is to be pursued.

T+1 in the EU: main challenges

The main challenges of moving to T+1 in the EU derive from:

• The need to automatise various processes along the custody chain (from trading to settlement) and the significant related investment needs
• The fragmented settlement landscape across the EU
• A potential increase of settlement fails

ESMA makes several recommendations throughout the report. Some should translate into regulatory requirements. Others will be expected to be taken upon directly by market participants to pursue a successful T+1 transition. Striking the right balance between defining regulatory requirements on the one hand and what needs to be managed at industry level on the other hand is a challenge.

Market participants might be expected to:

• Implement system upgrades
• Define market standards
• Define market practices
• Review schedules and functionalities offered by market infrastructures

While ESMA also makes some targeted recommendations for key post-trade processes (matching, settlement, etc.) or with respect to some specific financial instruments (ETFs, SFTs, etc.), the general idea coming from this report is that T+1 should be seen as an opportunity for further harmonisation and standardisation within the EU. This should promote market integration and ultimately, the Savings and Investments Union (SIU) objectives.

T+1 in the EU: timeline

ESMA proposes to move to T+1 in the European Union on 11 October 2027 and identifies 3 phases for the transition:

• A planning phase with the finalisation of technical solutions by the industry to be completed by Q3 2025
• A development phase for industry implementation to be completed by Q4 2026
• A testing phase over 2027 until the transition date

The next steps will include a legislative proposal by the EC to be discussed by the EU co-legislators. In the meantime, ESMA will continue working on the governance, trying to bring EU regulators and the industry together to tackle the various technical challenges to guarantee a successful transition to T+1.

T+1 in the UK

The T+1 journey in the UK began in December 2022, when the UK Chancellor of the Exchequer launched the Accelerated Settlement Taskforce (AST) to examine the case for, and the practicalities of, moving to a T+1 standard settlement period. Charlie Geffen was appointed as chair of the taskforce and a report was published in March 2024 recommending that the UK should move to T+1 no later than 31 December 2027.

In January 2024, the AST technical group was established. The aim of this group was to outline and develop the technical, operational and behavioural changes necessary for a smooth transition and detail when these changes should be mandated. The group, chaired by Andrew Douglas, was comprised of multiple workstreams covering all aspects of the trade lifecycle. Experts from both Securities Services and Global Markets at BNP Paribas participated in all workstreams.

Fast forward to 2025, the AST technical group published its implementation plan on 6 February 2025 recommending that the UK should transition to a T+1 settlement cycle on 11 October 2027. In scope are securities trading on UK exchanges (physicals fall into the scope of The Digitisation Taskforce chaired by Sir Douglas Flint). OTC transactions, repos, and primary issuances are also excluded whilst funds are to be encouraged to move to T+2 for subscriptions and redemptions.

A key element of the implementation plan is the UK T+1 Code of Conduct (UK-TCC) which should be read by, and applies to, all market participants.

What is the UK T+1 Code of Conduct (UK-TCC)?

The purpose of the UK-TCC is to guide market participants in transitioning to a T+1 settlement cycle as it explains what needs to be actioned and when such action is required (to ensure a smooth and efficient transition). The UK-TCC outlines 12 critical actions (across four business areas) and an additional 26 highly recommended measures (also with completion dates) to maximise the operational benefits of a move to T+1.

The UK-TCC also outlines five expected behaviours for market participants which are designed to promote efficiency, accuracy and readiness in the transition to a T+1 settlement cycle:

1. Commitment to Compliance: establish processes to measure and verify compliance with the T+1 requirements thus ensuring all parties adhere to the new settlement timelines and standards
2. Commitment to Automation: automate processes to reduce manual errors and increase efficiency. This shift towards automation will streamline operations and improve overall accuracy in settlements.
3. Commitment to ‘Action This Day’: modify behaviours and have a proactive approach in adopting automated solutions as soon as practicable
4. Commitment to Settlement Discipline: ensure high standards of settlementdiscipline and performance to avoid settlement failure and delays
5. Commitment to Readiness for Testing: include provision for readiness testing in operational and systems development plans to ensure market participants are prepared for the transition and can handle the new settlement cycle effectively

Changes to CREST in the context of UK T+1

Euroclear UK & International (EUI – UK’s CSD) are working on a multi-year transformation programme to upgrade their settlement system (CREST) to a new modular technology platform. EUI will publish its CREST modernisation programme schedule ensuring there are no major platform changes immediately before or after the 11 October 2027 implementation date. The AST has also recommended to prioritise changes that benefit operational efficiency and resilience and implementing them before T+1 where feasible. 

In line with the implementation, CREST opening hours for T+0 will be extended to 9pm GMT to support market participants submitting instructions later should they need to do so.

EUI have also agreed to provide secretariat and communications support to the AST.

UK T+1: next steps

Further to the publication of the AST’s implementation plan earlier this month, HM Treasury confirmed support for the recommendations for the UK’s move to T+1 settlement. The Financial Conduct Authority and the Bank of England have also outlined their support. The primary action for the government is to advance secondary legislation to amend the existing T+2 requirement, under the UK Central Securities Depositories Regulation, to a T+1 requirement. The government agrees with this recommendation and will introduce legislation to make this change when Parliamentary time allows.

In preparation, we are focusing on:

• Conducting an impact analysis of internal and market processes alongside the recommendations to define where changes might occur
• Ensuring ancillary services are reviewed as part of the process (e.g. funding, financing and securities lending) to ensure that the impact on liquidity levels and the associated costs are understood
• Engaging with stakeholders and industry associations across the industry lifecycle
• Reviewing the importance of pre-funding
• Analysing the impact on all clients (overseas and domestic) and how they may need to evolve their operating models (to avoid an increase in settlement fails, overdraft cost and issues with counterparts or underlying customers)
• Looking into how the continued existence of certificates and cheques would impact the market as a whole and whether dematerialisation and electronic payments are a prerequisite for this shortened settlement cycle

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