The global financial markets are undergoing a transformative shift with the approaching adoption of a T+1 settlement cycle. In May 2024, the U.S., Canada, Mexico, and Argentina successfully migrated to T+1, joining a host of other T+1 pioneers including China and India. The EU and the UK have recently set related deadlines to align with the future standard model.
The EU’s Roadmap to T+1
The European Union is advancing its own T+1 agenda, building on its October 2024 report from the EU T+1 Industry Task Force (an initiative composed of 21 trade associations) as well as a report from the European Securities and Markets Authority (ESMA) in November 2024 endorsing an EU-wide T+1 implementation by 11th October 2027 that is synchronised with the UK and Switzerland.
Key ESMA Recommendations:
- Amend Article 5(2) of the Central Securities Depositories Regulation (CSDR) to mandate T+1 settlement (currently T+2).
- Maintain existing asset class scope (including ETFs and securities financing transactions) to guarantee uniformity.
- Prioritise harmonisation of post-trade processes (e.g. matching) and market standards.
ESMA acknowledged challenges in quantifying the costs of these changes but emphasised benefits such as reduced systemic risk, margin savings, and alignment with global markets to bolster the EU’s competitiveness.
Operational Challenges for the EU
Kamel Torki, Senior Group Product Manager leading the T+1 initiative for CACEIS mentions that “The EU’s fragmented post-trade landscape poses unique hurdles. With over 30 central securities depositories (CSDs), multiple currencies, and varying trading hours, stakeholders face logistical complexities." He notes that key risk areas include:
- Pre-trade allocation, confirmation, and settlement instructions that must occur on the trade date (T), compressing repair windows for errors.
- Cross-border transactions: Investors in Asia-Pacific and North America may struggle with funding and FX deadlines due to time zone misalignment
- Settlement fails: Shortened cycles could increase fails during the adaptation period. For this reason, a temporary suspension of penalties related to CSDR seems like a suitable solution
- ETF/mutual fund misalignment: Fund NAV timelines may clash with T+1 settlement, requiring value-chain adjustments.
To mitigate these risks, ESMA, the European Commission and the European Central Bank have established a governance framework that brings together professionals from the sector (the Industry Committee), working groups by major theme and a committee chaired by ESMA which will ensure coordination between all stakeholders, from both the public and private sectors.
CACEIS’ Role in the Transition
According to Eric Derobert, Group Head of Public Affairs, “CACEIS, as a leading asset servicing provider, is actively engaging in industry working groups to shape the EU’s T+1 transition. We are currently involved with finalising a preliminary impact assessment, identifying critical areas of the adaptation project”.
He notes the following critical areas:
- Client Readiness: Aligning buy-side and sell-side clients with compressed settlement timelines, particularly for cross-border trade
- Automation: Replacing manual processes (e.g. fax and email) with real-time systems, machine readable communications allowing straight through processing
- Securities Lending: Enhancing recall processes to meet tighter deadlines
- NAV Processing: Streamlining fund administration workflows to align with T+1.
CACEIS is keen to offer clients solutions that ensure minimal disruption during the transition. We will also communicate detailed guidance as regulatory requirements solidify by late 2025.
CACEIS will be particularly well positioned to assist its clients in this future context, leveraging and strengthening our proven organisational and servicing models such as execution-to-custody and follow-the-sun, along with our expertise, investment capacity and geographical presence across the major global time zones.
ESMA’s proposed three-phase transition to T+1 includes:
1 - Preparation (2025 - 2026): Legislative adjustments, industry coordination, and infrastructure upgrades.
2 - Testing (2026 - 2027): Dry runs and system validations with CSDs and trading venues.
3. Implementation (October 2027): Full EU-wide rollout.
Critical Success Factors:
- Regulatory alignment across the EU, UK, and Switzerland
- Investment in automation and interoperability tools
- Temporary relief measures (e.g. CSDR penalty waivers) during the transition.
The transition to T+1 reflects the shared political desire for market efficiency and risk reduction. For the EU, the 2027 target demands unprecedented collaboration between regulators, market infrastructures, and participants. While operational hurdles (particularly fragmentation and cross-border complexity) remain significant, the ESMA-led governance framework offers a structured path forward.
CACEIS’ proactive engagement underscores the importance of industry leadership in navigating this transition. Clients can count on us to monitor regulatory and standards updates, as well as internal workflow changes required to meet the compressed timelines.
