T+1 Europe – Opportunities for Luxembourg’s International Competitiveness

Challenges and adjustments for financial institutions

The transition to T+1 settlement will require substantial adaptations from financial sector participants:

• Operational model and system adjustments – Financial institutions will need to modify their processes to accommodate the compressed timeline, which could result in up to an 80% reduction in settlement time.
• Organisational adjustments – Teams will need to operate across multiple time zones to meet the new requirements.
• Market infrastructure transformation – European market infrastructures, including central counterparties (CCPs), will need to thoroughly review and revise their existing procedures, practices, operational frameworks, and technologies.

In this context, firms should conduct thorough assessments of their current systems and processes to identify areas that require updating or an overhaul. This may involve significant investment in technology upgrades and process reengineering.

Banks that have already adapted to T+1 settlement for the US and other countries can leverage their past experience and existing infrastructure to prepare for T+1 settlement in Europe.

For banks that have already had to adapt their organisation through the implementation of late/early shifts or by leveraging capacity located in other time zones, they will need to account for:

• The increased scope and impact on capacity
• The need for competence development and staff training
• The increased costs associated with the transition

Failure to adapt could result in a loss of market share, while those who successfully navigate the transition may gain a competitive advantage and capture new market opportunities.

Strategic opportunities for Luxembourg

For institutions that lack internal resources or expertise to manage the transition, partnering with specialised service providers could be a viable solution. These providers may offer tailored T+1 settlement solutions or managed services to help firms comply with the new requirements.

Whether banks choose to integrate all required changes or externalise some of their processes, an early focus on T+1 could help unlock new opportunities:

• Competitive advantage – Early adopters and those who implement efficient T+1 processes may gain a competitive edge. They could offer faster settlement and reduced counterparty risk, making them more attractive to clients and counterparties.
• New market opportunities – As the European market aligns with other major markets operating on T+1, there may be opportunities for increased cross-border trading and settlement efficiency. Institutions well-prepared for T+1 could be better positioned to capitalise on these opportunities, particularly given Luxembourg’s central position between the US and Asia.

The move to T+1 is seen as a catalyst for greater harmonisation of European financial markets, potentially strengthening Luxembourg’s position as an international financial hub.