Duncan Carpenter, Director of Product Management


T+1 is firmly back on the agenda for the EU and the UK. The messages emanating from ESMA, ECB, HM Treasury, and industry bodies are unequivocal: the industry needs to accelerate the shift to shorter settlements and automation technology offers the shortest and safest route.

ESMA shortens its timeline

On Tuesday 15th October, ESMA published a statement on shortening settlement cycles in the European Union. In the document subtitled “next steps”, the regulator acknowledged the benefits of moving to T+1, mentioning risk reduction, margin savings and the reduction of costs.

ESMA also notes that “it is urgent to act if the EU wants to avoid prolonging and amplifying the negative impacts of the misalignment with major jurisdictions internationally”, which is why “the ECB’s DG MIP and ESMA consider it necessary to accelerate every aspect of the technical work needed to pave the way [for] any future move to T+1 in the EU.”

In other words, the runway that EU companies have for upgrading to T+1 readiness just got significantly shorter.

HM Treasury on process automation

Meanwhile, on 27th September, the UK’s HM Treasury published the Accelerated Settlement Taskforce, Technical Group: Draft Recommendations Report & Consultation. In the report, the “need” to automate processes showed up time and again, not only to ensure industry participants can meet the required reduction in processing times, but also to “ensure risk is mitigated and that market efficiency is upheld”.

And if that wasn’t clear enough: “processes should, where appropriate, be fully automated and scalable to meet tighter deadlines throughout the post trade life cycle through to asset servicing. This is relevant for every function and every sector of the UK securities industry” (emphasis added).

The report went into detail, notably on proposal “SFT 04.00 Automation on Stock Lending recalls”, which lists multiple benefits from automating recalls, including “speed and continuity of communication, reduction of manual errors and elimination of ‘false recalls’”.

Likewise, the proposal “COAC 04.00 Corporate Actions Automation” warned of the risks related to manually processed corporate actions, which are “inevitably time consuming and error prone”. Given the potential cost of such errors runs into the millions, even tens of millions for larger industry participants, the importance of automating such processes to prevent bottlenecks (and reduce risk) is clear.

The industry view

Finally, on recent industry body calls with a wide cross-section of industry participants, the consensus was complete: everyone should be using a vendor platform to automate recalls.

The biggest obstacle, judging by our discussions with participants in the EU and the UK, does not appear to be a lack of understanding – the sector sees the benefits of automation and embraces them. Rather, the main obstacle appears to be securing the required budget and resource for a potentially costly internal build, or a lengthy and complex integration with external solutions (measured in years). This issue is commonly exacerbated by functional silos that more often than not drive the budget, resource and priority decisions across enterprises, and which are not always clear on the obvious benefits of automation.

How we can help

That’s however precisely where Pirum’s SaaS solutions can really add value. We have a successful track record helping clients in North America transition to T+1 swiftly and cost-effectively.

In terms of the challenges identified by both HMT and ESMA: Recalls Manager automates the entire process of issuing, receiving and managing recalls and CoacsConnect automates the end-to-end Corporate Actions workflow, providing significant savings in time and costs, as well as reduced risk.

The shift to T+1 is an ongoing process for much of the global securities finance industry. If you are part of the 70% of the SBL community that hasn't yet adopted automated recall functionality yet then speak to us. We’d be happy to support your team transition to automated settlements.

 

Disclaimer: The information in this blog does not constitute legal or other advice; all content available is for information purposes only and your reliance on any suggestions provided is at your own risk.