The UK’s potential decision to move to a T+1 settlement cycle ahead of the European Union will not impact ETFs, the UK’s Accelerated Settlement Taskforce (AST) has said.
In an interim report, published on 27 September, the group outlined its recommendations for the UK’s move from T+2 to T+1 securities settlement outlining two scenarios.
Under ‘Scope 1’ – where the UK moves ahead of Europe – exchange-traded products (ETPs) “would not be captured by the T+1 rule until the EU moves to T+1”.
‘Scope 2’ – where the UK and EU align their transition to a shorter settlement cycle – will see ETPs move alongside other asset classes.
It means fears over ETFs becoming misaligned in Europe are likely to be soothed with some in the industry calling the potential misaligned approach a “nightmare”.
The EU had set to accelerate its deadline for T+1 as it looked to align with the UK’s timetable, with regulators such as the Authorite des Marches Financiers in France calling for a “well-coordinated” transition.
The draft recommendations come after the AST published a report in March recommending the UK Moves to T+1 by the end of 2027.
The UK government accepted the proposals and established the AST Technical Group to give its recommendations by the end of 2024.
Respondents have until the end of October to give their feedback on the draft recommendations.
Andrew Douglas, chair of the T+1 Technical Group, said: “This interim report is a key milestone in the UK’s journey to T+1 settlement and I would like to extend my gratitude to all those involved in crafting this report and providing the depth of industry expertise needed to shape these draft recommendations.
“As an independent, inclusive working group, supported by the public authorities, I am calling on all market participants to engage in this consultation so that together we can ensure the final recommendations for implementation reflect the full spectrum of industry needs.”
The European Securities and Markets Authority (ESMA) is currently assessing the responses from its call for evidence on T+1 which closed in December last year and will publish its final report in January 2025.
Last week, ESMA’s advisory board warned measures must be taken to improve settlement inefficiencies for ETFs ahead of Europe’s planned move, or risk exacerbating settlement inefficiencies for the wrapper.
It also recommended that ESMA considers special “attenuation measures”, such as the ability to temporarily suspend the penalty mechanism under the Central Securities Depositary Regime (CSDR) and to “avoid making significant changes to current penalty rates or methodology” ahead of the transition.
