Transition to T+1 Securities Settlement in Europe

“The European Securities and Markets Authority (ESMA), in coordination with the UK and Switzerland, has proposed transitioning to a T+1 securities settlement cycle by 11 October 2027. This initiative follows the successful implementation of T+1 in North America and aims to modernize Europe’s post-trade infrastructure, enhance market efficiency, and reduce systemic risk.”  This round statement can be read on the official regulators’ web pages together with list of key drivers for the transition initiative which include:

• Risk Reduction, to minimize exposure to counterparts and market risks.
• Liquidity Enhancement to accelerate capital availability and market activity.
• Operational Efficiency to promote automation and reduction of manual interventions.   
• Technological Advancement to encourage modernization of IT infrastructures. 
• Global Alignment to harmonize with major markets like the U.S., Canada, and Mexico.

All of these are valid points, but in my humble opinion one of the most decisive factors was European pride. Who among us remembers the times when the securities settlement took 5, then 3 and only later 2 days. It is worth remembering that for many years it was Europe leading the race of settlement cycle shortening, switching from T+3 to T+2 in October 2014 for all 27 EU countries, three years ahead of the US. Swift decision and implementation of the transition to T+1 in North America mobilized the European decisionmakers to act - and it is a good thing. The topic of shortening the securities settlement cycle was around for years but even if all market participants were agreeing on the inevitability of the change no one was rushing toward the execution. ESMA’s decision cut this being in limbo state and put market participants into the starting blocks for implementing the transition. But it is not trivial or a cost-free exercise for the community. Before we monetize any benefits, we will have to sweat and spend money to overcome challenges alongside the transition execution.  Let us investigate some of them. 

Unlike the US market, the European securities landscape is far from being homogeneous. We have not only many exchanges but also many central depositories running their local settlement systems, creating high fragmentation of the settlement process and complicating infrastructure harmonization. We operate in several different currencies and despite years of regulatory alignment through EU directives, there are still differences in regulatory regimes. RBI as a direct member of over a dozen central securities depositories or national banks’ settlement systems in Europe feels this pain on a daily basis.

At first glance shifting from T+2 to T+1 means we lose half of the time for settlement, but when we look closer, the situation is even more challenging. For trades we would like to settle in a night batch cycle, we need to be prepared to process all the information and match transactions throughout the settlement chain on trade date. Which means we will have only a few hours to do so. This can only be achieved through well designed and aligned processes and automation of the process flows. Any manual intervention will effectively decrease the chance for a timely settlement and increase settlement fail-rates leading to additional costs. This leads us to another crucial factor.

A shorter settlement timeline will require real-time processing and extended system availability throughout the value chain. One important lesson from the U.S. migration was the need to enhance system availability, enabling instructions to be processed and sent to the market outside of typical working hours. This is crucial across the entire value chain, as a single exception can undermine the whole effort. As a result, requirements for automation and process alignment will affect everyone involved.

As a side effect, operating through multiple providers may become difficult and costly. This might be true for business partners on both the trading and the settlement side. Clients may not be able to afford to accommodate different processes with different intermediaries, which might foster market consolidation. Another aspect refers to systems supporting trade affirmation and matching. In the US, this role is performed centrally by DTCC allowing every transaction party or intermediary to use a central affirmation mechanism directly or via an agent. In Europe we are missing such a tool as everything relies on specific market matching criteria and bilateral arrangements regarding transaction confirmation. With a shortened settlement cycle, accurate standard settlement instructions will be essential to maintain a high settlement success rate. Market players are skeptical if any pan-European affirmation and matching system can emerge in the next two years but in my view, there will be some FinTech or ICSDs trying to fill this gap. I would not be surprised to see DTCC itself as one of the potential affirmation and matching providers for EU markets, only time will tell.

Another subject, closely related to technical capabilities and processing efficiency, refers to securities availability. Lack of securities for the settlement of transactions is already now the main reason for settlement failures. Having securities in the right place in a T+1 environment will be a challenge, especially when the same securities can be traded and settled in multiple locations. Knowing exactly where one’s securities are held will be particularly important. A customer might say, “They are with my custodian X,” but in a T+1 context, such an answer may not be sufficient to ensure that the securities will arrive in the right place and on time to complete settlement. Clients will have to keep control over the place of safekeeping themselves or outsource this to their custodians, but this may cause additional fees for relocating the securities subject of settlement to the right spot. Here again timing of sending instruction and automatic processing will be of the essence as relocation of assets between different CSDs within a settlement day might be challenging. This factor may also imply changes in the sub-custodian chains toward their simplification, avoiding multiple touchpoints for the same assets as a side effect of T+1 introduction.

Cash liquidity will become one of the most important topics in the shortened settlement cycle. Mobilizing necessary amounts for the securities settlement in the shortened cycle will become a challenge and an extra cost. Having money required for the securities settlement will be one thing but having it on time in the desired place will be the key to assure seamless settlement processing. This will require upgrading funding and cash reconciliation processes, as well as increasing the speed of information turnaround with bank treasuries. Higher demand for cash limits and collateralization mechanisms will be another outcome of the settlement cycle compression. Alignment of money transfer capabilities with timing of securities settlement will be of key importance.

The same applies to FX transactions as part of the funding mechanism, especially for less liquid currencies. The mismatch between FX liquidity in a given currency and settlement times for the securities may increase the conversion cost and may impact the availability of funds necessary to settle a transaction. Providers who will be able to deliver funding and FX services in such an environment will secure a pole position in securities services as well.

T+1 will leave less room for errors and may lead to higher failure rates and penalties. Although North American experience shows that there was no significant impact of the settlement cycle shortening on settlement failure figures, we cannot take it for granted in Europe for the reasons explained above. Europe is far more complex and fragmented without a central European depository. This may create a much bigger challenge, especially for cross-border operations.

As explained above, the transition will require effort to implement and entail costs for market participants. This may refer also to the post-migration period since lack of investment may require spending more on staff who might need to work outside of standard office hours. Smaller firms may struggle with staffing and infrastructure upgrades. This is where choosing the right partner would be a key to accommodating the change with minimum effort and cost.

If, after reading the challenges part, you have a feeling that the T+1 project sounds like a recipe for disaster, please rest assured, the industry has recognized the importance of this transition and has already begun taking action.  The EU governing structure includes the T+1 Coordination Committee composed of ESMA, European Commission, ECB and Industry participants, the T+1 Industry Committee, consisting of industry associations and the Technical workstreams populated by representatives of market institutions, where also RBI is strongly present. In June 2025 the Coordination Committee issued a High-Level Roadmap to guide the transition. Key recommendations include:

• Standardization of processes to harmonize trade matching and confirmation procedures.
• Technology upgrades to encourage the use of real-time systems and reconciliation tools.
• Regulatory support to ensure clear guidance and coordination with authorities.
• Cross-jurisdictional collaboration to align efforts with UK and Swiss taskforces.
• Testing and monitoring set up to prepare for extensive testing phases and establish mechanisms to monitor implementation progress.

It may sound general, but the direction toward improving processes has been set. There are still two years to go, and while I wouldn’t recommend using this as a reason to sit back and wait for the challenges to resolve themselves, it is sufficient time to make the necessary changes and adapt to the new shortened settlement cycle.

I hope this article has highlighted the importance of the T+1 transition and the need to begin preparatory activities now, as this will be one of the top projects for the European securities industry over the next two years. Everyone should analyze their processes and systems to ensure that any challenges arising from the transition can be addressed. Proper communication and alignment with counterparts throughout the value chain are also essential, as improvements in operational flow cannot be achieved without them. At RBI, we take this process very seriously and have established a dedicated project team with broad departmental representation to ensure that no aspect of the T+1 transition is overlooked. We have begun analyzing our existing processes to ensure their relevance and readiness for the upcoming change. We believe our Direct Access model is particularly well suited to address T+1 challenges, as it shortens communication chains and enables direct relationships with depositories in CEE markets, many of which are outside of T2S. Our strong position in payments and FX operations in the CEE region further strengthens our readiness for the upcoming challenges. RBI will keep you informed of our progress and will actively communicate key aspects of the project, highlighting any issues that may require our clients’ attention.