Research reveals Financial Industry Preparedness for Accelerated Settlement
Working to accelerate data futures, researchers from Ulster University discuss the progress made towards accelerated settlements in this SWIFT Institute paper.
Research Background
Earlier this year, researchers from Ulster University were commissioned by the SWIFT institute to research how prepared the financial industry is for a move towards accelerated settlements. This research was carried out along with researchers from ISITC Europe CIC and the London Institute of Banking and Finance.
Currently, the UK and USA operate in what is known as a T+2 settlement, (meaning transaction + 2 days) this whitepaper report researched the progress being made towards a T+1 settlement, and how prepared the financial industry would be for such a change.
To complete the research, around 44 unstructured interviews took place, along with two focus groups that featured key stakeholders. The overall aim of this research is to provide guidance to stakeholders in the financial industry to move towards the T+1 system.
Moving to a T+1 system is the most significant global move towards an accelerated settlement cycle, with the Securities Exchange Commission (SEC) published rules for one-day settlements to become the standard settlement cycle for equities by May 2024.
The research found that Accelerated settlements offer promising advantages across various industry segments.
Quote from Professor Daniel Broby
“Reduced counterparty risk and lower settlement margins create a more robust financial ecosystem, while wealth and fund managers benefit from improved access to funds for customized investment strategies.”
However, the adoption of accelerated settlement processes brings about notable technological hurdles. Prof. Mark Durkin emphasizes, "Readying firms for straight-through processing is crucial not only for compliance with accelerated settlements but also for reaping significant efficiency gains and reducing operational risks." The move would also increase the operational burden for stakeholders, having to process complicated financial instructions in increasingly short periods of time – this could potentially lead to an increase in errors and delays.
Overall, the research found that the benefits of moving to a T+1 settlement are greatly acknowledged, there are a few concerns from stakeholders regarding moving to this system including technology, costs for moving to this system, and potential fines for delays.
Suggestions from the research for industry
The White Paper proposes actionable steps to implement accelerated settlement processes effectively:
- Firms must prioritize increasing levels of automated affirmation and straight-through processing to maintain settlement efficiency and meet accelerated timelines.
- Overnight batch processes, unable to meet new deadlines, should be removed or optimized to facilitate real-time settlement and enhance operational efficiency.
- Nonstandard instructions and paper-based processes through digitization and automation significantly improves efficiency and reduces errors.
- The research demonstrates that while the arguments for accelerated settlements are compelling, careful consideration is needed to mitigate associated costs and risks. Prof. Broby adds, "The benefits are evident as markets. However, it is vital to weigh potential costs and risks."
SIBOS Conference 2023
The research team that worked on this report were invited to present it at SIBOS 2023 in Toronto, the largest financial conference in the world.
At SIBOS, Professor Tony Gandy from the London Institute of Banking and Finance and ISITC Europe spoke on this research Then a global panel, with representatives from DTCC, ISITC, CCMA, ISITC Europe and CSDC discussed the US/Canadian move to T+1 from their perspectives.