T+1: A governance upgrade, not just a settlement change

Managers of dealing funds are already expected to assess liquidity on a daily basis. Recent guidance from the Financial Conduct Authority (FCA), International Organisation of Securities Commissions (IOSCO) and the Financial Stability Board (FSB) formalises and sharpens those expectations, but does not fundamentally change them.

The practical difference lies in timing. While underlying securities will move to T+1, the FCA and major trade bodies recommend that UK authorised funds move to a T+2 settlement cycle from the same date, and with only one day between instruction and settlement, monitoring cash flows into and out of funds becomes more time critical. There is less room for delay between trade execution and funding.

Meeting contractual settlement timelines will also be central to investor confidence. Avoiding late creation payments requires consistent oversight of money movements. Platforms and distributors are likely to feel this pressure most directly, as their reconciliation and payment processes will need to operate within the same-day cycle to meet fund deadlines.

For firms that already run robust liquidity monitoring and stress testing, the transition should be manageable.

Governance becomes more visible

The more significant shift sits in governance. T+1 requires firms to move from periodic monitoring of settlement risk to more active management of it. This is where real-time visibility and clear accountability become more apparent. Many settlement delays originate outside a firm’s direct control. Counterparty short positions remain one of the most common causes of failed or late settlement, meaning improvements on the sell side will be critical if the benefits of T+1 are to be fully realised.

In practice, effective governance under T+1 can be framed around four core elements: ownership, oversight, frameworks and culture.

Ownership means clear senior responsibility for settlement risk consistent with the Senior Managers and Certification Regime (SMCR) expectations. If affirmation rates fall or funding issues emerge, there must be clarity on who acts.

Oversight needs to provide timely information rather than retrospective reporting and frameworks must embed controls and escalation routes into daily processes. Culture is the area often overlooked, but often matters most. Teams need to prioritise accuracy and timeliness as standard practice, rather than relying on overnight correction. T+1 reduces tolerance for “we’ll fix it tomorrow”.

Enhanced monitoring also plays a central role. Firms need to identify issues early, rather than relying on after-the-fact reviews. Regulators are likely to see T+1 readiness as a practical test of operational resilience. If settlement failures occur, attention will extend beyond operational detail to accountability and governance.

Settlement risk is therefore not confined to operations. It sits firmly within the firm’s wider risk framework.

Part of a wider market shift

T+1 reflects a broader move towards faster settlement cycles, stronger operational standards and clearer end-to-end accountability across the ACD/Investment Manager/Custodian chain. The reduction in settlement time removes the margin that previously absorbed operational inefficiencies. Manual workarounds and late adjustments become harder to sustain, and a strong digital infrastructure becomes essential.

Firms that treat T+1 as a narrow systems project may well meet the 2027 deadline. However, firms that use it to strengthen processes, clarify ownership and modernise oversight will be better positioned as markets continue to move towards shorter cycles and real-time expectations.

T+1 is about operating within a tighter window, with less tolerance for delay and greater scrutiny of how risks are managed and those that approach it with clear accountability and disciplined execution will be well placed for the transition.