The Impact of European T+1 on Capital Markets

The European transition to T+1 settlement cycles by 11 October 2027 presents a complex set of challenges due to the large number of markets, currencies and regulatory frameworks involved.

In this video discussion, Guy Gibson, our Co-President of Asset Servicing & Global Head of Institutional Banking & Markets and Andrew Douglas, Chair of the UK Accelerated Settlement Taskforce (UK T+1 Migration) unpack these challenges while exploring the opportunity of T+1 to act as a catalyst for greater automation and digitalization in clearing and settlement.

Watch now to learn of the key considerations you need to be aware of to get your European T+1 implementation program on track in 2026.

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Read excerpts from the discussion:

Guy Gibson: Let's start right at the beginning. What is T+1 and why are we doing it?

Andrew Douglas: Securities transactions, at least in the UK, settle on T+2. Fixed income gilts settle on T+1 already and have done since the year 2000. So, we are looking at adopting T+1 as the settlement cycle. So, settling one day after trade rather than two days after trade from 11 October 2027.

One of the other reasons for doing this is all markets globally try to harmonize their processes, try to harmonize their standards, try to harmonize wherever they can. And with the US, Canada and Mexico moving to T+1 in 2024, that meant that 60% of global capital markets were operating on the T+1 cycle. So, we are planning to reduce the settlement cycle by one day.

Guy Gibson: When you look back into the US, T+1 was actually pretty straightforward relative to the path ahead in Europe, with all of the different complications and nuances of the European markets, with currencies, with tight settlement times, with time zones, with all those sort of things.

Andrew Douglas: The thing that does keep me awake, which is directly to your point, is complacency. There are people who've been through the US move and think the US went reasonably well.

But there are some very basic differences. So, for example, in the US, T+1 was a single-sided obligation. It was only the broker that was required to settle on T+1. In the UK and in Europe and in Switzerland, it’s a dual-sided obligation. So, both counterparties are responsible for the settlement. Don't assume that because you did the US, the UK, the EU, and Switzerland will be a doddle.

Guy Gibson: So where are we in this process?

Andrew Douglas: Into 2026, the focus will be on building the component parts, the building blocks that you have determined that you need to put in place in order to be compliant. And in 2027 that will be the year of testing and ultimately, go live.

Guy Gibson: So, T+1 I would say is the start of what is going to be quite an interesting journey, right?

Andrew Douglas: I call T+1 the gateway drug to digitalization. Because the focus is on automation, and it is clear that the future of clearing and settlement will become more automated. And what I'm quite interested in at the moment, is what will things look like in five years? Because one of my concerns is that at the moment when people talk about digitalization, all they're talking about is digital versions of what we already have. Nobody's actually saying, ‘is what we have appropriate?’

So, I’m part of another task force. We have the T+1 task force, and I also do one for digital markets. And we've been having some interesting conversations there, which is with the advent of new technology, greater flexibility, greater levels of automation why do we need to straight jacket ourselves with T+1 anything?

Guy Gibson: If you're thinking about lending or securities finance, what tokenization can do in the future for moving around collateral or assets instantaneously takes out a huge amount of friction. So that's going to play a big part, without a doubt, over the next few years.

Andrew Douglas: The people who in the long term will win out of this will be the people who get with the program and work out what needs to be done and are then in the forefront.

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Guy Gibson

Guy is Co-President of Asset Servicing & Global Head of Institutional Banking & Markets for Northern Trust.

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