T+1 in Europe: Lessons learned from the US transition

Key Takeaways

• High-level roadmap sets direction for EU’s move to T+1.
• The US rollout serves as both a playbook and a cautionary tale.
• Early tech investment and targeted automation emerge as success factors.

The EU, UK, and Switzerland’s move to T+1 settlement in October 2027 demands coordination, swift planning, and early action from executives and tech leaders alike.

As part of preparing the ground, the EU T+1 Industry Committee – a group of independent market and regulatory experts steering the transition and supporting cross-border coordination – published its non-binding recommendations for the transition on 30 June.

The roadmap proposes a structured approach to achieve a T+1 settlement cycle by the deadline of 11 October 2027. It provides recommendations across key topics, including trading, matching, clearing, asset management, and foreign exchange, to ensure a seamless transition.

As highlighted by committee chair Giovanni Sabatini, a key theme throughout the report is the need to enhance automation and eliminate manual interventions across all stages of the post-trade lifecycle.

The report’s publication marks the formal start of a complex transition toward T+1 settlement across EU and EEA markets, with parallel moves in the UK and Switzerland. With the deadline approaching, firms are urged to scrutinize the recommendations, assess their operational exposure, and start laying the groundwork for the transition.

In a recent webinar ahead of the report’s release, Sabatini outlined the roadmap’s “adhere or explain” approach. While not mandatory, firms that diverge from a recommendation or miss a deadline should notify stakeholders, explain why, and agree on alternatives to limit any negative impact.

Meanwhile, the US move to T+1 in 2024 offers Europe both a benchmark and a warning for its transition.

Reduced risk and greater efficiency

The findings of a Vermiculus and GreySpark Partners report show that implementing T+1 settlements in the US has delivered measurable benefits. These included a 28 percent drop in DTCC clearing fund requirements, and a 41 percent reduction in credit risk exposure due to the shorter settlement window.

Major broker-dealers also reported lower margin requirements, freeing up capital for reinvestment. Meanwhile, increased automation and straight-through processing have begun to yield operational cost savings. This was particularly true for large, tech-savvy firms that adapted smoothly, and gained a competitive edge.

Tech and liquidity constraints

Smaller firms, on the other hand, faced high upfront costs to upgrade systems, or to outsource operations, raising concerns about market consolidation. The shortened settlement period also impacted post-trade workflows, particularly for businesses engaged in cross-border transactions or those with limited automation.

All of this highlights the necessity of operational readiness and real-time compliance, so that firms can ensure they have the right systems and workflows in place.

Europe: Diversity comes at a cost

As Europe prepares for its own T+1 transition, the region’s fragmented infrastructure and the complexity of navigating multiple jurisdictions magnify these challenges.

According to findings by Firebrand Research, the sheer variety of currencies, market infrastructures, participants, and regulatory regimes mean that the financial burden will be far heavier than in the US. Large global custodians – responsible for trade matching, confirmation, settlement, collateral, and liquidity – could each face a transition budget of up to $36 million, compared with around $13 million in North America.

But not all costs are financial. Europe’s uneven levels of automation mean that, while some markets may adapt relatively smoothly, others risk falling behind. If firms aren’t sufficiently prepared, fragmentation could translate into real operational disruption – adding another layer to the price of diversity.

Bonus content:

The road to T+1: invest early, automate smarter, get the data right

In its report on Europe’s preparations for the switch to T+1, Firebrand Research identified several steps necessary for a smooth transition.

To ensure a smooth and stable transition to T+1 settlement, Europe must prioritize early investment in post-trade automation, data quality, and scalable infrastructure. These foundations will be key to managing operational complexity and reducing settlement risk – especially for firms that may struggle to absorb the change.

Considering the implementation costs that large custodians are expected to face, timely upgrades to systems will be essential to keep costs under control and avoid trade failures. These include central matching systems – which automatically aligns trade details between counterparties – and standing settlement instructions (SSIs), the predefined instructions for how and where trades should settle.

In addition, improving the consistency and accuracy of place of settlement (PSET) data will help reduce friction across fragmented markets.

As important, however, is the need for early testing and coordinated governance. Drawing on lessons from the US, Europe’s transition will depend not just on better technology, but on clear planning and strong collaboration across the industry.