The FCA has provided a wakeup call to the industry: T+1 readiness will not be a walk in the park, and firms need to be taking preparations seriously.
Historically, we’ve seen regulatory prep run up to the wire as firms underestimate the amount of work required and lowball budgets to make the required changes. But you get the sense in the FCA’s latest ‘Dear Compliance Officer’ letter that the UK regulator is not going to let any malaise creep in. They have effectively put the industry on notice with no excuses for falling short.
Thankfully, the largest banks and custodians – who will feel the brunt of the change due to the high volume of trading and settlement they orchestrate – are taking steps to prepare for T+1 in the UK, the EU and Switzerland. Using lessons learned from the US move back in May 2024, you might expect this group will be well ahead on their preparation. Smaller firms, however, have the potential to slip through the cracks. In fact, smaller asset managers and alternative funds are in the most precarious position for the move to shorter settlement times.
The reason is simple. Historically, these firms have not traded in high enough volume to have to worry about settlement processes. Two days has been more than enough time to complete their post-trade processes with a reasonable success rate, with the support of their custodians and fund administrators. Even with the manual processes workflows that are widespread across the industry. The cut in half of settlement timelines will stretch this arrangement and highlight the flaws in such out-of-date methods. Ignoring fundamental systemic and cultural changes to post-trade is not an option.
The key issue is that many of the communications and workflows between such counterparties are heavily reliant on email, email lists, spreadsheets, and, of course, people. This way of working simply cannot keep pace with the volume and complexity of fund operations in a T+1 world.
It creates bottlenecks, increases risk, and overstretches already lean teams within mid-sized or boutique funds. While certain custodians and other third-party providers have modernised, progress among smaller investment managers is slow due to lower operational resource and legacy systems, which are often mistakenly perceived as too expensive to change.
This isn’t to say these firms need to undertake a complete overhaul of their operating model and bring the settlement operations entirely in-house. That would be a multi-year project that would distract from the core objective of being operationally ready for T+1. But the technology is readily available to improve the interaction – both speed of, and satisfaction from – with the critical third parties.
This mirrors one of the recommendations in the FCA’s letter encouraging asset managers to contact their settlement agents to discuss required changes, such as confirmation timing, allocation, and instruction submission.
What does this mean in practice? Most problems occur in the interaction between the fund and their service providers. So discussing the changes and how to interact for T+1 is one thing, but there is a risk the different firms interact via email and other manual systems. So instead, UK asset managers would do well to implement technology to smooth this process out, making the fund manager better able to adapt to a more pressured environment for handling settlement breaks, which may occur at a higher volume due to compressed timelines.
Self-service platforms, API-based data access, and collaboration platforms offer an alternative to email backlogs and manual intervention, bridging the gap between investment managers and their custodian.
Making these technology changes should be a priority for firms in 2026. Undertaking the steps outlined by the FCA in their ‘Dear Compliance Officer’ letter without this critical change could risk the effectiveness of a fund to meet shorter settlement times. With more streamlined and direct lines of communication without outmoded, manual back and forth over email, managers in scope should find that preparations fall into place.
