UK financial sector makes slow progress on preparations for new settlement system

By Phoebe Seers

LONDON (Reuters) -Four in 10 financial businesses in Britain expect to miss a deadline to prepare for a halving of the settlement time for securities transactions in October 2027, according to a survey published on Tuesday.

Dubbed T+1, the new system will require stocks and bonds to settle within one business day instead of two, with proponents saying it will cut counterparty risk and improve market efficiency. The EU will move on the same day as the UK. The United States adopted T+1 in 2024. 

A poll of 350 brokers, asset managers and financial market infrastructure businesses by research firm The ValueExchange and the Accelerated Settlement Taskforce (AST), a government-backed body overseeing the transition, found that 95% are preparing for the change, up from 81% at the start of the year. 

However, 40% of respondents said they will miss an interim deadline of December 31, 2026, when trade allocations and confirmations must be completed on the trade date, or T+0. With the allocations and confirmations done on T+0, the trade affirmation and settlement follow on T+1.

Two thirds of respondents also said they did not expect their third-party service providers to be ready by October 2027.

“This level of preparation at this stage is encouraging and reflects strong industry engagement," AST chair Andrew Douglas said.

"While challenges remain around third-party readiness, similar to what we saw in the U.S., the UK benefits from the ability to draw directly on lessons from the U.S. transition to T+1." 

Failure to meet such deadlines could draw closer supervisory attention and raise the risk of settlement delays and higher remediation costs, Douglas said.

The Financial Conduct Authority has raised concerns that small and mid-sized asset managers may not be aware of the changes needed and has urged businesses to start planning.

The regulator told Reuters it was pleased many firms were making progress towards the T+1 transition.

"Where we see actions or inactions that would harm market integrity we may look to intervene further," a spokesperson said.

Britain's finance ministry published draft legislation last week confirming the October 2027 deadline will be mandatory.

(Reporting by Phoebe SeersEditing by Tommy Reggiori Wilkes, David Goodman and Andrew Heavens)