The 27th September Taskforce draft recommendations report recognises the scale of change that will be needed for T+1 to be successful and efficient. This is reflected in the number of recommendations (43 Principal and 14 Additional), the emphasis on the importance of automation, and the recognition that these changes won’t happen unless they are backed by regulation.
The report notes that reviews of the US implementation “suggest that insufficient focus was given to automation leading to firms post implementation having to deal with increased volumes of manual processing and exception management” and current feedback is that this has resulted in significant increases in staff working hours and costs.
We suggest that the final report should include a Principal recommendation that firms should establish, by early 2025, a programme to deliver effective T+1 compliance. This should include scope, governance, and initial planning, resourcing and funding. We recognise that many firms have this in place already but the industry-wide nature of this programme and the dependencies this creates means that firms should be confident that their counterparties and suppliers are making the same level of commitment.
Getting ready for this is going to have a serious lead time. The list of things to be done is long because the industry knows how much needs to be done. We recognise that the final report will include the 2025, 2026 and 2027 milestones but we think that it should also be more explicit on these points (and more directive).
TORI’s Observations are:
- The number of recommendations and the 3-year timeframe reflect the scale of this programme. It is fixing issues that have remained unresolved at both firm and industry level for decades.
- Firms repeatedly underestimate the complexity and time to deliver these types of programme. This includes underestimating or not understanding dependencies and their issues and complexities.
- This is not a ‘throw people at it late on’ programme. Failure to put in place the building blocks and plans to support effective automation and exception management will result in poor customer service, reputational damage, and significant direct and indirect cost.
- The first step is to size the challenge. We suggest this should be done through two lenses:
- The impact on the front office and the need to be ready to minimise potential additional costs – e.g. agent fees, fines, lines of credit (fixed and variable costs), interest, collateral, fx, payments
- A review of exceptions. How many root causes are there that need to be fixed? What is the approximate cost to deliver this?
- Understanding the final scope – is Europe in or out, etc – is not a dependency for getting started. It will be even more important to have effective automation and control if Europe doesn’t move at the same time and multiple settlement scenarios need to be supported.
Sizing the programme to support same day processing
Firms should be thinking now about sizing their programmes for hitting the 2025, 2026 and 2027 milestones. We are seeing very large variations in our conversations with our clients. Some have large programmes underway and are already starting to address major potential issues such as location strategy. Others have low levels of awareness about what T+1 means and how it will impact their firm.
The industry-wide nature of this programme and the dependencies this creates means that firms should be confident that their counterparties and suppliers and making the same level of commitment.
The diagram below shows our suggestion for how firms that don’t currently have programmes should be planning for the next 3 years. The early part of 2025 should be focused on sizing the challenge and building the business case to inform the budget request for 2026/27. This should include the P&L impact to the front office in addition to the costs and risks associated with making the necessary changes.
Some of the work needed to size the programme (building blocks below) will underpin the T+1 delivery requirements and be needed to support other business requirements. If this is not being picked up in other projects then these should be started in 2025.
Sizing the programme including dependencies: Data, Automation and Resilience
We would also draw attention to areas where milestone delivery has dependencies that are outside the report scope. We would draw attention to three areas in particular: Data, Automation, and Resilience.
Data
Data needs to be considered from the perspective of same day processing needing automated, near real-time controls. Enhanced data delivery mechanisms and protocols will be needed to support multiple, intraday deliveries.
- Data sourcing: are system sources and owners known, are there processes and resources for meeting the requirements for new data outputs, are the required new delivery mechanisms available?
- Data integrity: is data consistent across systems, is the speed at which it is disseminated good enough for same day processing?
- Data cleanliness: is data accurate and complete?
- Data security (including cyber): do current data security controls recognise and support the new demands for T+1?
Automation
Automating all end-to-end processing components is a major activity. We suggest that the starting point should be to understand:
- What is the scope of products and services that will be impacted by T+1 settlement
- How well are the end-to-end processes understood and mapped, in particular sources of information (core and non-core sources, internal and external sources, manual and automated) and timings
- What are the current problems with source data, including number, timing and time to fix (receiving the data and preparing it for use)
- What are the issues with processing the data? How many exceptions, how much time and effort does it take to resolve them? What are the dependencies and are they internal within the department, external within the organisation, or 3rd party?
Resilience
Resilience needs to recognise that there is much less time to address issues.
- Where do prevention, identification, and resolution need to improve?
- Can the work that has been done to meet the regulatory Operational Resilience and DORA requirements be leveraged for T+1 same day processing?
Where do prevention, identification, and resolution need to improve? Can the work that has been done to meet the regulatory Operational Resilience and DORA requirements be leveraged for T+1 same day processing?
