The likely move to a shorter (T+1) securities settlement cycle has seen a number of developments in recent weeks, culminating in yesterday’s joint statement by ESMA, the European Commission and the ECB on the next steps to shortening the EU securities settlement cycle.

At its public hearing in July 2024, ESMA had already signalled its plans to submit a report on a potential move to T+1 to the Council of the EU and the European Parliament by January 2025 against the backdrop of the US move to T+1 earlier this year (for more information, read our July 2024 insights here: Shortening the Settlement Cycle against a backdrop of “instantaneous everything” – Arthur Cox LLP).

ESMA is on track to deliver its report in the coming weeks.  However, the joint statement noted that it is “urgent to act if the EU wants to avoid prolonging and amplifying the negative effects of the misalignment with major jurisdictions internationally” – in light of that, the technical work needed to support a move to T+1 will be accelerated with details of a governance structure to be published shortly which will oversee and support that technical work.

The joint statement followed shortly after the publication of a Report by the European T+1 Industry Task Force (comprising 21 trade associations) which looked at how the move to T+1 could be managed efficiently, emphasised the importance of a coordinated approach with the UK and Switzerland, and called on public authorities to set a realistic implementation date, coordinate closely with the UK and Switzerland, consider a temporary suspension of cash penalties over the settlement period and look at whether further regulatory changes are required to support settlement efficiency / reduce settlement fails.  That Report had also recommended the establishment of a formal EU governance structure to oversee the move.

On timing, participants in the July 2024 ESMA public hearing had favoured Q4 2027, and the latest indications from the UK are that its move to T+1 will most likely take place in H2 2027.  The UK’s Accelerated Settlement Technical Group is currently consulting on draft recommendations – the final recommendations are expected by end-2024 together with confirmation of an implementation date and a schedule of work to cover the transition period.  The Report by the European T+1 Industry Task Force notes that a H2 2027 is realistic for some participants, but could be challenging for others and that establishing the formal governance structure, defining the transition period as soon as possible (with a duration of 24-36 months) and setting a planned implementation date are key from a certainty perspective.