Europe’s top markets watchdog has signalled its intentions for moving EU markets to a T+1 settlement cycle through a statement outlining both the urgency of acting and the preference for aligning with the UK and Switzerland.
The European Securities and Markets Authority (ESMA) acknowledged the benefits of reducing settlement times but highlighted how harmonisation, standardisation and modernisation will be needed and will require investments.
Harmonisation within Europe is a top regulatory priority at present as the continent looks to improve its competitiveness on the global stage. Subsequently, ESMA has concluded that in the context of needing an efficient and competitive market “it is urgent to act if the EU wants to avoid prolonging and amplifying the negative impacts of the misalignment with major jurisdictions internationally.”
ESMA noted that Europe would likely need to amend CSDR to mandate a harmonised shortening of the settlement cycle in the EU.
With regards to a timeline ESMA acknowledged the high level of interconnectedness between the EU capital markets and those in other jurisdictions in Europe, highlighting how a coordinated approach across Europe is “desirable”.
The regulator added that alongside other European groups, it considers it “necessary to accelerate every aspect of the technical work needed to pave the way to any future move to T+1 in the EU.”
ESMA, in close coordination with national competent authorities, and sub-groups from the European Commission and European Central Bank, have therefore agreed to establish a governance structure, incorporating the EU financial industry, as soon as possible to oversee and support the technical preparations of any future move to T+1.
“In order not to lose momentum, details of the governance structure will follow shortly. It will be important that this governance is inclusive and ensures balanced sectorial and geographical representation,” said ESMA in its statement.
ESMA’s public stance was revealed just a day after the European T+1 Industry Task Force voiced support for a co-ordinated move to T+1 in the EU, acknowledging the benefits of an aligned approach across the entire European region, including the EEA, the UK and Switzerland.
The task force stated that this followed a range of views being expressed as to whether the date identified for the UK transition, H2 2027, could also be a feasible implementation date for the EU.
The task force did, however, emphasise that depending on the exact definition of what regulatory, technical and operational changes will be required, a transition period of between 24 and 36 months will be required to accommodate the complexity of the market infrastructure in Europe.
Established in 2023, the European T+1 Industry Task Force comprises of 21 trade associations involved in European capital markets, bringing together a range of industry stakeholders who would be impacted by a move to T+1 settlement for securities traded and settled in the EU.