The path to T plus 1: Why automation is crucial for the UK’s transition to faster settlement

The UK Accelerated Settlement Taskforce’s recent recommendations could mark a fundamental shift for the UK financial markets. By drawing on lessons from North America's T+1 implementation, the taskforce has highlighted that inadequate automation could lead to increased manual workflows and exception handling, creating unnecessary operational strain.

With the UK preparing to move from T+2 to T+1 settlement, and ESMA proposing a move to T+1 as well by October 2027, automation and alignment with global standards are quickly becoming indispensable for firms seeking to effectively manage this shift.

Learning from North America's experience with T+1

North America's T+1 transition offered both valuable insights and cautionary lessons for the UK. On the positive side, the strong involvement of industry bodies like the SEC and DTCC helped establish a clear implementation timeline and roadmap.

However, smaller firms encountered considerable challenges. While large banks and custodians who’d invested in automation adapted more easily, regional banks and smaller entities struggled, perceiving the costs of automation to be too high. This meant that many continued relying on manual processes, limiting their ability to expand access to investors with modest capital.

The key lesson for the UK is that while automation is critical, including the entire industry in this transition is equally important. For smaller firms to navigate the shift smoothly, the case for automation needs to be compelling, with clear communication and a collaborative industry-wide approach.

Automation's essential role

The necessity for firms to prioritise automation in order to adapt to shorter settlement cycles was one of the taskforce’s main findings. As an international financial hub with extensive participation from global investors, the UK requires automated systems to optimise post-trade functions like allocation, confirmation, and affirmation. Efficient STP on trade date (T0) is essential, as manual interventions in settlement can elevate operational expenses and increase settlement risk.

Minimising manual tasks in core post-trade processes needs to be an industry-wide goal. Many firms have already implemented T+0 operations, using automation to achieve faster settlements without compromising on compliance or security. However, broadening access to these capabilities across all firms is vital to meeting the demands of the transition.

The imperative for global coordination

Beyond the need for true industry inclusion, the global interdependence of UK financial markets has driven the taskforce’s focus on international alignment.

Given that a large share of the UK market involves non-UK investors, these participants must be prepared for the upcoming changes to ensure seamless operations post-T+1. Synchronising UK processes with international standards, particularly those in the EU and Switzerland, will be crucial for managing cross-border transactions while safeguarding the UK’s global competitive position.

Solutions that enable smooth integration with global market infrastructures will be vital. Equally important is the automation of essential data processes, such as handling SSIs and Client Account Allocations. By automating repetitive tasks, firms can free up resources to concentrate on higher-value work while also enhancing transparency and traceability. Reducing reliance on spreadsheets, emails, and unstructured data allows firms to resolve exceptions faster and more accurately.

Automation as a Strategic Foundation for the Future

In the long run, automation is more than a temporary solution—it serves as the strategic foundation for a successful transition to T+1. The industry is already seeing end-to-end solutions supporting allocation, affirmation, and confirmation processes to help firms achieve T+1 objectives, but this approach must be forward-looking. Technology needs to evolve alongside business demands to keep firms at the forefront as the pace of financial market changes accelerates.

As UK financial markets prepare for T+1, adopting a long-term view is crucial. While the taskforce’s recommendations lay out a strategic framework, the real challenge will be in implementation. By adopting automation now, firms will not only ease their transition to T+1, but also develop adaptable operational models ready to accommodate future changes in global finance.