Charlie Geffen, chair of the UK Accelerated Settlement Taskforce, has detailed the challenges in finding a consensus on when the UK should make the switch to T+1.
In a letter to market participants, Geffen acknowledges that the question is how and when the UK moves to T+1, rather than whether it should do so. “Few question that a key benefit of a move to T+1 would be the catalyst for the industry to invest in automation and to update systems and processes,” he said.
In gathering market perspectives, the taskforce found that there is wide support for a two-phase approach to T+1 in the UK. The first phase would involve establishing market standards and ironing out logistics, while the second – the actual transition to T+1 – would take place at a later date.
However, finding a consensus on when that date should be has proven difficult. “That is not a surprise given the global nature of the UK market,” Geffen wrote.
Some members of the industry wish to minimise the period of misalignment with the US which moves to T+1 in May next year, while others wish to align with the EU – for which there is currently no timeframe.
ESMA’s window for feedback on a potential reduction in the settlement cycle closed last week, with a report with main findings due “in the course of 2024”.
The letter regarding the UK switch added that the costs and burden of implementing a transition “lie unevenly with the benefits”, some of which relate to creating a more efficient ecosystem. There is also the risk that nothing will happen unless there is a time frame.
Geffen added: “It makes no sense to set a date in stone at this stage, not least because we need to learn any lessons from the US move.”
As the market continues to debate and discuss when the UK should switch, the taskforce is establishing a Technical Group, to begin phase 1, setting market standards where needed and “identifying the costs and benefits of a move, the downsides of not moving and the risks of misalignment with the US and the EU”.
Geffen added: “The next 12 months can therefore be spent planning the steps that will need to take place to enable Phase 1 to be completed. I did not want the delay in publishing my report to slow down that important preparatory work.”
The final report will now be published in Q1 next year, and will be accompanied by a list of questions for further consultation – focused on the matters and recommendations set out in the report.