Andrew Walker
There is an awkward contradiction sitting at the heart of T+1. Firms are being given less time to settle transactions at exactly the point when successful settlement depends on an increasingly complicated network of organisations, systems and data.
Custodians, brokers, asset managers, fund administrators, platforms, data providers, technology partners, market infrastructures and counterparties all have a role to play. Nobody settles in isolation, and under T+1 every participant in that chain has less time to get its part right.
Your clock is shared with everyone else
The FCA describes settlement as a complex web of related transactions where the weakest link can determine success or failure. It has specifically highlighted client and counterparty readiness as a concern, warning firms that their own settlement performance will depend on the arrangements of others in the chain.
That makes T+1 readiness difficult to assess solely from inside your own organisation. A firm may have modernised its systems, removed significant manual processing and thoroughly tested its workflows, but still remain exposed when an input arrives late, a counterparty supplies incomplete information or another provider's process continues to rely on overnight activity.
The settlement deadline does not move simply because the problem originated somewhere else.
Small delays travel surprisingly well
Complex post-trade processes are made up of tightly connected steps. Information moves between organisations, is checked, enriched, reconciled and matched, instructions are generated and exceptions are returned for resolution.
In a longer settlement cycle, a delay at one stage may still leave enough time to recover downstream. Under T+1, every delay consumes a much larger part of the overall window.
This creates a compounding effect in which a relatively minor issue early in the process can arrive at the settlements team as a very urgent problem.
The issue is particularly relevant in the UK and Europe because the operating environment is not identical to North America. The FCA has cautioned firms against assuming the successful US transition provides a direct blueprint for the UK, pointing to more dispersed responsibility for pre-settlement actions as well as multiple CSDs, CCPs and currencies across Europe.
Coordination therefore becomes a critical part of readiness.
Visibility becomes harder across organisational boundaries
Third-party dependency also introduces a visibility challenge. Inside your own organisation, it is possible to monitor a process relatively closely. Once information crosses an organisational boundary, that picture can become less clear.
Has the counterparty received it? Has it passed validation? Is somebody investigating an exception? Is the process waiting for your organisation or theirs?
When operating windows were longer, teams had more time to answer those questions. Under T+1, discovering that a transaction has been stuck for several hours is a much bigger problem.
Firms therefore need to think increasingly in terms of exception-first monitoring. The useful information is not simply how many transactions are progressing normally. It is which ones are not, why they are not, who owns the issue and how much time remains to resolve it.
Outsourcing the process does not outsource the risk
This point matters particularly for senior operational leaders. A third-party provider may perform an activity on your behalf, but that does not make the dependency disappear from your operating model.
The FCA's operational resilience guidance is clear that firms should understand third-party dependencies supporting important business services and actively manage the associated vulnerabilities. Responsibility cannot simply be passed to a provider when something goes wrong.
That principle should influence the T+1 conversation. “We outsource that” may explain how a process operates, but it does not in itself demonstrate control.
Firms still need confidence in the quality, resilience and timeliness of the processes connecting them to external parties.
Standardisation can reduce friction
One way to reduce third-party risk is to improve what happens before information leaves the organisation.
Many external exceptions are created because data arrives incomplete, inconsistent or in a form the recipient does not expect. That creates a familiar (and sometimes frustrating) cycle of sending, rejecting, investigating, correcting and resending.
Every loop consumes time.
Rules-driven validation can help reduce that friction by applying the same logic consistently before information passes to a custodian, broker or other counterparty. This might include checking completeness, validating combinations of data, applying counterparty-specific rules or carrying out calculations automatically rather than relying on manual interpretation.
It does not remove the dependency, but it can make the interaction with that dependency more controlled.
Modernisation without another re-platform
This is also an area where firms can become trapped by their existing technology landscape. One platform produces data in one way, a legacy application requires something slightly different, a spreadsheet bridges the gap and a manual upload gets the information into another system.
Eventually, the process works, but only because people and workarounds are stitching it together.
Replacing every platform involved would be neither quick nor realistic. A rules engine offers a different approach.
Heywood Idiom can operate alongside existing technology, applying consistent rules, validations and calculations across defined processes without requiring the underlying platforms to be replaced. As a vendor-agnostic rules engine, it allows business logic to be separated from the individual systems that happen to execute or consume it.
For T+1, that creates an opportunity to tackle specific friction points rather than committing to wholesale transformation. A rule currently embedded in a spreadsheet can be industrialised, a validation can happen before information is passed externally and a calculation can be applied consistently regardless of which underlying platform originated the transaction.
This is less dramatic than ripping everything out and starting again, and that is rather the point.
Learning from North America
The US transition to T+1 was widely regarded as successful, but there are useful lessons beneath that headline.
PostTrade 360 reported anecdotal increases of up to 10% in some operational teams and additional staffing costs potentially reaching 18% in certain cases as firms used manual workarounds and additional people to manage the transition. It also describes firms subsequently pursuing delayed automation and technology modernisation programmes to reduce those costs.
The lesson is not that T+1 inevitably creates more cost. It is that unresolved manual processes and dependencies can.
The FCA has explicitly cautioned UK firms against assuming that the North American experience can simply be replicated here. That makes understanding the weaknesses in your own operating model, and the external relationships connected to it, even more important.
T+1 will make strong relationships with custodians, brokers, administrators, technology partners and counterparties increasingly important, but good relationships alone are not enough.
Firms need cleaner interactions, greater visibility, clearer ownership and fewer avoidable exceptions travelling between organisations. They need to understand where their dependencies are and what happens when one of them does not perform as expected.
Most importantly, they need to control what they can control. In a T+1 environment, settlement speed will increasingly be determined not only by your own operating model, but by the slowest part of the chain connected to it.
Understand your T+1 dependencies before they become problems
If third-party dependencies, fragmented systems or manual hand-offs are creating uncertainty within your T+1 planning, speak to Heywood.
We can help you explore where rules-driven automation could improve the quality and consistency of interactions across your existing technology and provider ecosystem, helping reduce avoidable exceptions and strengthen operational control.
Talk to Heywood about preparing your operating model for T+1.
