UK and Brussels Set Course for T+1 Settlement by October 2027

Both the UK and Brussels have now announced plans to transition to same-day trade settlement, known as T+1, with an implementation target of October 11, 2027. This change will help align their settlement cycles with global standards and is expected to release £1 billion of currently tied-up margin in the UK.

A Coordinated Shift in Settlement Practices

The UK announced that it would adopt T+1 settlement by October 11, 2027. Following suit, Brussels confirmed last week that it too will meet the same timetable for its switchover. The move, highlighted in recent coverage by the Financial Times, is seen as a crucial step toward more efficient financial markets.

Andrew Bailey, Governor of the Bank of England, emphasized the benefits of a shortened settlement window. He stated,

“Shortening the settlement window will bring important financial stability benefits from reduced counterparty credit risk in financial markets, and it is important for companies to have robust plans for an orderly transition in October 2027.”

Economic Benefits and Operational Challenges

In a speech delivered yesterday, Sasha Mill, Executive Director of Financial Markets and Infrastructure at the Bank of England, shed further light on the potential advantages of moving to T+1 settlement. According to Mill, the transition could release margin amounts on the order of £1 billion—funds that market participants could redirect towards more productive uses in support of the UK economy. She explained:

“We estimate that the amount of margin released may be on the order of £1 billion - a significant sum which could be used by market participants for other productive purposes, supporting the UK economy.”

This estimate is based on margin reductions observed in another market that successfully transitioned from T+2 to T+1. Beyond the immediate economic benefits, the T+1 system is expected to:

  • Lower Counterparty Risks: Both firms and central counterparties (CCPs) will face reduced risks.
  • Improve Global Alignment: The move addresses the misalignment with the US, which already operates on a T+1 basis.
  • Drive Automation: The transition should encourage further investments in automation and standardisation, potentially reducing settlement costs over the medium term.

However, Mill also highlighted significant challenges that lie ahead. Among these are the complexities of adapting to multiple time zones—further complicated by foreign exchange considerations—and the need to standardise and automate settlement instructions to ensure seamless operations.

As the financial services industry anticipates these changes, market participants are encouraged to begin preparing for an orderly transition. It is now time to get your project resources lined-up.