Welcome to the final blog in our T+1 series.
With planning for T+1 complete and budgets repurposed to address the most fundamental change in securities settlement the industry has faced in years, the question is, are you in control?
Clients are reporting that T+1 is front and centre of their Spring workload and, for many, 2023 is the year of implementation and refinement.
As uncertainties remain and various dependencies are still to be resolved, project teams are working towards a go-live in just over a year with fingers crossed fingers behind backs, hoping for a six-month extension that would provide additional time to focus on the more nuanced issues.
Why did we find ourselves here in the first place?
Coming soon after the Central Securities Depositories Regulation (CSDR), the consequences of a scaled back, optimised settlement process will be welcomed by most. Reducing costs and risk while increasing market efficiency can only be a positive.
If this is all coming as new information, yes, you are behind the curve, but only by around six months. Many organisations I’ve spoken to have already formulated their task force and project teams, ringfenced and approved budgets. Now, well into the detail, they are uncovering the areas of most pain.
The pain points
For most firms, it’s estimated that around 70-80% of automated T+2 processes can be amended to cater for T+1 with minimal impact. However, it will need to be a carefully choreographed exercise, beginning life in the front office and working its way to middle and back offices. A level of control and governance will also be needed to ensure no issues remain.
Avoiding wholesale changes to legacy technology will become a core challenge. Conversations with providers needs to happen now if they haven’t already. One vendor falling behind could cause the whole project to collapse.
T+1 brings into focus the processes which fall outside of standardised or automated workflows. For example:
- Daily routine breaks that point to an upstream static or inventory failure and get written off daily. Track these where they occur and update the source issue.
- Embedded legacy processes buried in spreadsheets that hide behind a macro. Think data lineage here. A spreadsheet could drive additional processes and become a blocker.
- PDF statements that must be manually retyped. NLP/OCR technologies can completely automate this task.
- Allocation spreadsheets that arrive by email and require rekeying. If there’s not a more efficient alternative, turn the spreadsheet/email into trusted data by plugging it into a booking process, avoiding the rekey and risk of human error.
- Confirmation processes missing legal language or standard settlement instructions. Is the template creation process fulfilling its role? Is there more than one source to the process? Do you have all the information from the SSI (Standard Settlement Instructions)?
- FOBO reconciliations which rely on end of day batch cycles. This legacy process will need to be accelerated. Review your reconciliations platform capability and refresh if necessary.
- Client reports that are erroneous or incomplete. By solving the above data challenges, this will become highly unlikely.
The above represents only a few of the pain-points which could create problems. From March you’ll have significantly less time to resolve and remedy any discrepancies. Doing nothing is not an option and applying sticking plasters will become increasingly problematic as the rush to resolve becomes more tactical and cumulative.
Add to that, UK and EU authorities are keeping a close eye on their US counterparts with a view to adopting similar measures. Although it will be more complex to integrate 25+ currencies instead of two, the aspiration is there.
Tactical methods will be used by some participants unclear of or unmotivated by the implications of a compressed settlement cycle. But, as more firms and jurisdictions turn to technology for automating manual processes, commoditisation will occur, the cost to trade will cheapen, and volumes will increase. Those participants entrenched in manual processes will face a real struggle.
If you’re feeling lost when it comes to T+1help is at hand.
Xceptor is helping firms on their T+1 journeys. If you are just embarking on the project cycle and need help or guidance with transformative technologies that unwrap legacy process and promote post trade automation, we can help you reach those objectives. Contact us today.
Missed the rest of the blogs in our T+1 series, read them here.