With Europe and the U.K. moving to T+1 settlement in the next couple of years, the fund industry in the U.K. is calling for faster settlement of fund trades, which currently often take three or four days.
A collection of industry trade groups — including the U.K.’s Investment Association, the Alternative Investment Management Association (AIMA), and the Personal Investment Management & Financial Advice Association — issued a joint statement recommending that firms speed up investment fund settlement to T+2 by October 2027, when the industry is slated to adopt T+1 settlement for most underlying securities.
“The recommendation aims to align fund settlements more closely with plans in the U.K., EU and Switzerland to move securities trades to T+1 by the same date,” the groups said.
Currently, fund transactions settle on a variety of time frames, ranging from T+0 to T+4, the groups noted, with funds that hold stocks and/or bonds typically settling on T+3.
“As a critical bridge between investors and capital markets, it’s extremely important that the funds industry keeps pace with broader changes in financial services infrastructure,” said Chris Cummings, CEO of the Investment Association, in a release.
“The move to T+2 for funds will encourage greater global alignment on settlement cycles, enabling better services for investors, fostering a more robust financial ecosystem and improving the competitiveness of U.K. and European funds. We encourage firms, their service providers and the wider distribution chain to kickstart preparations for T+2, focusing on the delivery date to ensure a smooth transition,” he added.
The U.K.’s Financial Conduct Authority (FCA) endorsed the recommendation, saying, “Faster settlement makes our markets more efficient, improves liquidity and supports the growth and competitiveness of the U.K.”
Fund investors should “share in those benefits through a corresponding reduction in the time taken to settle trades in fund units,” the FCA said.
For funds that invest primarily in securities settling on T+1, having the funds settle on T+2 will be in the best interests of investors, the regulator said — acknowledging that “the operational practicalities of fund settlement will not allow” fund managers to offer T+1 settlement.
The FCA also warned fund managers that currently operate on T+4 settlement to consider how investors will be affected by a growing gap between market settlement and fund unit settlement.
Fund managers would need “strong justification” to allow for settlement to take more than two days, it said.