(Bloomberg) — The group spearheading the UK’s shift to a faster trading regime is preparing for the possibility that the country makes the switch in advance of the European Union, a move that could create a litany of headaches for financial professionals across the region.
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The UK will follow the US to the one-day settlement cycle known as T+1 in the final quarter of 2027, according to Andrew Douglas, chair of the government-appointed team advising on the shift. In a report published Friday, the group set out its vision for how firms should prepare. An exact transition date will be published in January, Douglas said.
While the advisers noted that aligning the shift with the EU is the ideal, they stressed that the UK’s switch date shouldn’t be dependent on the bloc’s readiness. Their recommendations set out a more complex scenario where the country goes alone, which would create a settlement mismatch across the continent’s markets.
“It’s clear that one solution that suits the UK and our European colleagues is a much better solution than us going down different paths,” Douglas said in an interview. “The ball is in their court to work out if it’s feasible.”
The proposed timeframe still leaves the door open for a co-ordinated UK-EU transition, since officials in Brussels have previously signaled that a move by the end of 2027 is possible for the bloc. Yet dates in 2028 have also been mooted for an operation that’s likely to be complicated and costly thanks to the EU’s fragmented capital markets.
Failure to coordinate could create all manner of funding mismatches and misaligned processes across two closely linked jurisdictions, likely driving up trading frictions and operational costs. Wary of the risks, industry groups such as the Association for Financial Markets in Europe have been pushing hard for the UK and EU to accelerate their settlement cycles at the same time.
Either the UK or EU going it alone before the other is ready is “what we don’t want to see,” Jim Goldie, EMEA head of capital markets, ETFs and indexed strategies at Invesco, said before the report was released. “The most important thing is to do it in a harmonized fashion. I hope as an industry, Europe will be ready to migrate by 2027. It feels like three years is enough time.”
Accelerating settlement is likely to involve both changing operational processes and upgrading technology, as well as making possible adjustments to staffing. But it would realign European markets with the world’s largest, after the US made the leap to T+1 in May alongside Canada and Mexico. A mammoth industry effort helped ensure that was a smooth transition.
A consultation published earlier this year by the European Securities and Markets Authority, the EU market regulator, showed many asset managers, banks and trade groups in the bloc are concerned that the move to settle trades on a T+1 basis will prove disruptive.
“While I do think the UK move to T+1 is attainable by 2027, it will be quite ambitious for the EU to align at the same time,” Kaisha Schnoll, an assistant vice president covering trade settlements at STP Investment Services, said before the report. “The EU markets are much more complex with specific market requirements, taxes, securities that trade across multiple exchanges.”
Alongside Friday’s report, the UK group launched a consultation on its proposals with a view to making final recommendations in January. That publication will provide implementation dates for firms, with certain preparations needing to be completed by the end of 2025 at the latest.
If the UK and EU transitions don’t align, the group recommends some instruments such as exchange-traded products and Eurobonds remain on a slower settlement cycle initially.
“If the EU and Switzerland decides that our time framework works for them, I’m very happy that we work together,” Douglas said. “Europe will make its own decision but I remain optimistic that we will be able to do something together.”
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