Shortening the cycle: preparing for faster settlement of trades in investment funds

The UK is preparing to implement a T+1* securities settlement cycle on 11 October 2027, a significant structural change to capital markets operations. This means that the UK will move from the current T+2 securities settlement cycle to a T+1 cycle, aiming to enhance efficiency and reduce risks in financial markets. This reform, supported by the Financial Conduct Authority (“FCA”), HM Treasury (“HMT”) and the Bank of England, is part of a global trend toward faster and more resilient settlement infrastructure.

This shift will affect FCA authorised funds (including UCITS and NURS) and recognised schemes that are exchange traded and/or which invest in affected securities, and the firms responsible for managing them, and executing and settling their underlying trades. In order to enable investors in funds to share in those benefits, the FCA generally expects that FCA authorised funds and recognised schemes will adopt a T+2 settlement cycle from 11 October 2027 in order to align more closely with the underlying market settlement.

*“T+1” means that once an in-scope security (for example, a stock or bond) is purchased or sold, the transaction must be settled within one business day (i.e. the trade date plus one business day).

Who does this impact?

The move to T+2 will directly affect:

• fund managers and Authorised Corporate Directors (“ACDs”): those managing UCITS, NURS and other FCA authorised funds will need to adjust fund settlement cycles, Net Asset Value (“NAV”) timing, dealing cut-offs and internal liquidity processes. Other fund managers may also be impacted, for example if they invest in affected securities and/or if they are recognised schemes.
• transfer agents and platform providers: these parties must update their systems to handle tighter operational timelines and ensure investors receive timely confirmations and settlement.
• depositaries and custodians: custody services and asset verification processes will be impacted by shorter post-trade windows.
• investors: those investing will benefit from quicker settlement periods.

Key points

• The UK is preparing to transition to a T+1 securities settlement cycle on 11 October 2027, in line with other jurisdictions including the EU and Switzerland.
• The FCA generally expects authorised funds and recognised schemes to move to a T+2 settlement cycle to enable investors in funds to share in those benefits and in order to align more closely with the underlying market settlement.
• There is currently no standardised market approach and many FCA authorised funds currently operate on T+3 or T+4 settlement cycles in order to provide flexibility when investing in a broad range of underlying assets that settle on different timelines and for other cash management and funding reasons.
• Fund managers and ACDs must prepare for updates to operational systems, fund documentation and investor disclosures.
• In announcing its expectations, the FCA has referred to firms’ obligations in relation to the Consumer Duty, noting that the transition will improve efficiency and outcomes for investors in funds and that, although funds can remain on a longer settlement cycle, this will need to be justified.

Background

The Accelerated Settlement Taskforce (“AST”), established by HMT, released its final report in February 2025 recommending that the UK adopt a T+1 securities settlement cycle. The FCA supports this recommendation, which has the potential to deliver a range of market-wide benefits. For example, there will be a reduction in counterparty risk, as shortening the time between trade execution and settlement limits the window during which one party to a transaction could default before completion. A faster securities settlement cycle also enhances market liquidity, as quicker post-trade processing allows capital to circulate more efficiently, enabling investors to reinvest funds with greater speed. In addition, by driving operational improvements and encouraging greater automation across trading and settlement infrastructure, the shift to T+1 is expected to foster increased competition.

As many UK authorised funds do not currently settle on a T+2 or faster basis, key asset management trade organisations (The Investment Association, Personal Investment Management and Financial Advice Association, and Alternative Investment Management Association) jointly issued a recommendation on 29 May 2025 encouraging firms to alter their fund settlement timings to T+2 on or before 11 October 2027. In support of this recommendation, the FCA has called on UK authorised funds and recognised schemes that invest predominantly in markets that will operate on a T+1 settlement cycle, to move to T+2, which would better align with the shorter settlement period for the underlying assets.

Other jurisdictions are also transitioning. The EU and Switzerland are also moving to T+1 settlement from 11 October 2027, the same deadline as the UK. In May 2024, the United States, Canada, Mexico and Argentina transitioned to T+1 settlement. Please refer to our earlier articles on EU and other developments for further background (here and here).

Next steps for fund managers and ACDs

For fund managers and ACDs, this transition is not simply a technological change but a fundamental shift in how funds interact with the market and proactive preparation is essential.

To determine what is required to move to a T+2 settlement cycle in October 2027, affected managers should consider the following:

• conduct a readiness assessment: review existing fund ranges that currently operate with settlement cycles longer than T+2, NAV timing processes, and dealing cut-offs to identify misalignments with T+1/T+2 settlement cycles. Firms should also consider how their underlying investments will be affected by faster settlement, including by liaising with their sell-side counterparts to understand what process and funding changes will be required.
• engage with third parties: liaise with platform providers and depositaries to ensure operational compatibility with shorter settlement periods.
• update fund documentation: review and amend fund Prospectuses and KIIDs (as relevant) to reflect updated settlement periods.
• align with Consumer Duty: evaluate how faster settlement supports fair customer outcomes. Ensure that investor-facing disclosures are clear, accurate and timely.
• watch the regulatory space: monitor any market and FCA developments in the lead up to October 2027.

The FCA expects those impacted to give a detailed account of their T+1 implementation plans and outline how they are addressing any existing issues in the settlement process.

The FCA has indicated that, going forward, fund managers will be expected to provide compelling and well-evidenced reasons for any instance where settlement of trades or fund units extends beyond two business days. Such cases will be considered exceptional and may only be justified where, for example, the fund’s target investor base is unable to meet a T+2 settlement timeframe (for example, due to structural or jurisdictional limitations). This means that where fund managers or ACDs continue to operate outside of T+2 after October 2027, they must ensure that they document robust justification.