The UK and Europe moves to T+1 settlement in 2027 means regulatory projects that will force firms to change to support same-day processing. Batch processes and controls need to become near real-time, exceptions need to be identified and addressed quickly, and manual processes need to be automated.
The good news is that these changes will deliver significant other business benefits including:
- Supporting Regulatory Operational Resilience / DORA compliance (near real-time controls over Important Business Services (IBS))
- Regulatory reporting (identifying and addressing errors prior to making regulatory reports)
- UX / Automation: data problems impacting internal and external customer experience and limiting automation, including the adoption of next-gen technologies
- Costs and Risks from manual intervention and processing, including duplicated effort to address the same / linked issues in different systems
- 2nd and 3rd line oversight over processes and controls
The starting point is data management. This includes creating and maintaining a detailed inventory of the underlying data (source system, format, owner, availability, delivery protocols, etc), developing enhanced data delivery mechanisms and protocols to support multiple, intraday deliveries, and controls to ensure consistency between systems.
The table below is based on the Accelerated Settlement Taskforce playbook timeline. We have added the contingency, shown in grey, as we do not think that it will be possible to mobilise and deliver a programme of this scale as quickly as suggested by the original timeline.
T+1 settlement needs more than an end of day squeeze
This can’t be addressed by just doing things a bit faster, extending working hours, or throwing bodies at it. The post-trade operating model needs to be reworked to be able to deliver, by midnight on trade date:
- Matched settlement instructions in CREST
- Cash in place, which may require a separate FX trade
- Securities in place, which may require depot realignment or a stock loan recall
The post-trade operating model needs to be reworked
The Challenges include:
- Identifying and managing exceptions without fully automated end-to-end business processes
- Dependencies on end of day / batch processing to get information (both own and counterparties / suppliers)
- The need for intraday controls to recognise and support cancels and amends
- The need for enhanced data delivery mechanisms and protocols to support multiple, intraday deliveries
- The need for a consolidated view across multiple systems, custodians, counterparties, etc. This includes linked but separate activities (securities trade, FX trade, stock loan return, etc)
- Ensuring compliance with regulatory obligations including reporting and processing penalties and other costs
- Understanding and managing costs, potentially at client level
TORI believe that the starting point is data management. This includes creating and maintaining a detailed inventory of the underlying data (source system, format, owner, availability, delivery protocols, etc), developing enhanced data delivery mechanisms and protocols to support multiple, intraday deliveries, and controls to ensure consistency between systems.
Interestingly, a recent paper by TORI and Gresham Technologies highlighted the similarities between the post-trade operating model requirements for T+1 and the approach taken by firms with high levels of operational resilience without any regulatory restrictions. They do this to reduce costs and ensure high levels of scalability:
- To achieve high resiliency, firms need to know the details of all operational processes and data flows (Correlation, dependencies, transformation, desired result)
- Understanding how things work at a detailed level drives automation and efficiency (reduced costs and high levels of scalability)
TORI is a specialist financial services consultancy and its people are all experienced practitioners. It has a deep understanding of market participants’ businesses, including their products and services, client types, front to back flows, infrastructure, 3rd party providers, and regulatory obligations. It has a long track record of providing innovative and effective solutions.
TORI works extensively with firms to support them with Digital and Data Transformation, Operational Excellence, and Governance Risk and Compliance.
