With the launch of the unified Testing & Readiness Plan for the UK, EU and Switzerland ahead of the transition to T+1 settlement in October 2027, Capco’s Rollo Burgess and Elisabeth Plakinger discuss potential challenges for market participants in the UK and Europe, assess priority focus areas and offer recommendations on key next steps for the industry.
Capco was closely involved in supporting our clients through the T+1 transition in the US market. As firms engage with the Testing & Readiness Plan, what useful lessons carry over to the UK and Europe transitions?
Rollo Burgess: There are some useful ones, although there are also clear differences in terms of there being one central US infrastructure utility in the shape of the DTCC. However, there's a strong resemblance between the processes in the US and the UK and Europe, with some shared hygiene factors for a successful programme. These include looking carefully at points of friction across your front to back process in its entirety, leveraging better technology solutions to automate and enhance your processes, and thinking about the impacts on your operating model – for example, locations of staff and shift patterns and so forth.
Elisabeth Plakinger: I totally agree. Take the complexity that we've already seen in the US transition, and for Europe multiply that by 27 separate CSDs and 27 infrastructure providers, plus diverse client bases and a financial system that is less centralised. So European firms need not only to understand the deadlines for T+1 but must treat the entire initiative as a front to back process optimisation exercise. That means taking a close look at the breaks and exceptions handling as well as the full spectrum of operational and technical considerations.
Rollo Burgess: I would note that there has been very close and positive collaboration between the EU, the UK and Switzerland in terms of overall approach. The constructive, collegiate approach we’ve seen around engaging the industry to agree and then drive forward a transition plan has been a great demonstration of how to deliver large scale market structure change. It’s been an impressive exercise.
Is there a sense that the challenges inherent in the UK and European T+1 transitions are being underestimated? Are there any specific pain points or risks that are not being adequately priced in at the moment?
Elisabeth Plakinger: For Europe, and also arguably the UK, there is an imperative to ensure greater harmonisation and orchestration, across the market, bringing all stakeholders together and ensuring end-to-end readiness. The European challenge lies in cross-border settlement as well as in the greater complexity of SSI matching and affirmation processes. Having a clear view on your external stakeholders will be critical, both to secure internal alignment and ensure coordination across counterparties and client-facing infrastructures.
Rollo Burgess: The UK is a market with one CSD, so in that sense it's more similar to the US and, yes, the European challenge is greater. Nonetheless, I do feel firms have a reasonable grasp on what needs to be done at this stage. Something that may be of interest as we look across Europe – and which may effect the UK and those European jurisdictions that are not within the eurozone – is the currency dimension. There's obviously an inherent FX complexity around T+1 settlement. Many asset managers and other institutions active in equities are natural holders of US dollars rather than sterling or other non-euro European currencies excluding the euro.
Having a clear view on your external stakeholders will be key – ensuring alignment both within your organisation and across your counterparties and client-facing infrastructures
Post-transition, what breaks first under stress in a T+1 environment? What can you do today to avoid or at least minimize that eventuality?
Elisabeth Plakinger: The first processes to come under strain will be those that are still highly manual, rely on overnight batch processing or require significant human intervention. Put simply, any process that still depends on a phone call or an email to be completed is likely to break first in a T+1 environment. What firms need to ensure now is not only awareness of the new deadlines, but also a clear understanding of where their operating model is already vulnerable. They need to identify where manual processes still exist, where temporary fixes or patches are in place, and where manual rework or exception handling is still required.
Rollo Burgess: For large organisations, such as global asset managers trading with tier 1 banks, a significant portion of their transaction flows are already fully STP and could already settle on T+1, given 90%+ of settlement instructions are being issued on trade date. The challenge is around exceptions and where it involves smaller clients or counterparties who aren't yet fully automated or using the leading industry platforms to manage their workflows. In a T+1 environment, it will be vital to optimise those workflows to ensure exception management processes and any atypical settlement processes operate as smoothly as possible.
The fundamental challenge moving to T+1 is when something goes wrong, you have very little time to fix it. Today, back office teams are accustomed to having a full day (on trade date plus 1) to fix any rejected trades booked the day before. They will no longer have that grace period, so exception management will need to be significantly accelerated – and things will break very quickly if firms have not invested in the right processes and tooling.
I’d also draw attention to scenarios that involve more than simply buying or selling of a cash security – particularly securities lending and some of the prime brokerage flows. For example, potential disconnects when exercising an option because the operational days for cash security settlement and the option exercise process don’t align.
Technology is obviously going to be a key enabler in a successful transition. Any observations on what tools or platform will be most important, perhaps even indispensable?
Rollo Burgess: As noted earlier, it will be key to use the multilateral industry platforms and middleware that are out there to enable efficient settlement, to align reconciliations, to catch issues ahead of time and ideally to enable STP. To that end, large sell side organisations should be encouraging their clients down that path and where possible making that an easy choice for them.
Elisabeth Plakinger: The onus first and foremost must be on understanding your processes – focusing on the same language and message flows, optimising those flows from point of trade through the asset servicing stages, and harmonising your infrastructure. There is also a strong case for using AI in an intelligent way optimise and enhance your processes, notably when it comes to exception handling.
Rollo Burgess: I fully agree. We're already working with clients on integrating AI in the exceptions space and anticipate only seeing more demand for that work. Managing handovers between different regions to enhance your ‘follow the sun’ model is another example where AI can add value. That said, the ideal scenario is that the majority of your settlement flows will be executed on a STP basis without touching a human or an AI agent or platform.
The fundamental challenge moving to T+1 is when something goes wrong, you have very little time to fix it… exception management will need to be significantly accelerated – and things will break very quickly if firms have not invested in the right processes and tooling
So what does good look like on go-live in October 2027?
Rollo Burgess: An orderly market in which everyone's continuing to trade and there's no disruption at to trading activity, liquidity or anything else is clearly a prerequisite. If we start seeing an uptick in CSDR-related mandatory buy-ins and penalties, then that's indication that something's gone wrong.
Elisabeth Plakinger: Evidence of a clear alignment between firms and their counterparties will be key in the first month after the go-live date. Within six months, there should be a full understanding of all the required steps to achieve T+1 settlement, and of how banks and their clients need to interact.
Rollo Burgess: I would note that, in the US, while the markets weren't interrupted and there wasn't a significant increase in late settlements, we heard anecdotally that costs went up for many firms across the market, particularly smaller institutions. There are indications that suggest some organisations addressed this by hiring more people to handle their manual processes. That would not be a good outcome for the industry, as these transitions are a real opportunity to automate and improve processes, not use more people to deliver inefficient processes. If that trend were to repeat, it wouldn’t be apparent on day one though, but rather in the months and years following the transition.
What are some of the practical steps Capco is taking to support our clients through the transition? Where are our clients currently seeing the most value in terms of acceleration, scaling and risk management?
Elisabeth Plakinger: We are supporting clients to prioritize their delivery model alongside a broader analysis to ensure that all the involved stakeholders are talking to each other fluently using the same technical language. It is a very practical approach, not just theory, and that is where we provide the strongest value for our clients.
Rollo Burgess: A prerequisite to a successful T+1 programme is having a very good grasp of your data and of what is going on in your business right now, not least what are the factors and root causes driving late settlement. We are working with numerous clients on getting that in place, which will allow them to focus on right investments and which levers to pull.
Identifying sources of friction in your processes and having the ability to maintain that view – if not in real time, then in something close to it – will be key to understanding if the investments you're making are working, and to rapidly course correct if they're not. Equally, if firms don't yet have that already in place, it's not too late to address it, and enhancing you data quality and the insights it provides will pay dividends right across your business more generally in the future.
Elisabeth Plakinger: It is also important that none of us underestimate the scale of this initiative or the work that you need to do to meet the deadline – because T + 1 will go live, and it will not wait for you to be ready.
Our Experts
Contact us
To find out more about working with Capco and how we can help you overcome any potential challenges, contact our experts via the form below.