Industry Insights: 2027 - A New T+1 Deadline for the Funds Industry?

Contributed by Nicki Pelling from Calastone

The European Commission has proposed that it will move securities markets to a T+1 settlement cycle in October 2027. While the shift will apply to equities and other listed instruments, its implications go much further. For fund managers and their service providers, the question is no longer if T+1 affects them – it’s how prepared are they for it?

For the funds industry, this development marks a significant moment – a clear indication that the wider settlement infrastructure is changing. Although mutual funds are not directly covered by the new rulebook, they are already being impacted by the growing momentum behind shorter settlement cycles. This will only accelerate as the UK moves in parallel with the EU.

The Experience of T+1 in the US

When the US transitioned to T+1 in May 2024, it triggered a wave of change for firms with cross-border exposures. Trade affirmation and matching processes had to be tightened, FX cut-offs became harder to meet, and gaps opened up between settlement dates for securities and those for fund subscriptions and redemptions.

In practice, many fund managers had to plug this mismatch using custodian overdrafts or requesting extended settlement terms – solutions that often came with added cost or complexity. Others used swing pricing to help manage the impact of large flows on existing investors.

The change also affected ETF trading. For ETFs with a significant US weighting – often 60-70% – the different settlement timings introduced a funding lag. This caused a modest increase in ETF premiums, as authorised participants built the additional cost into their pricing. In a post-2027 world where Europe operates on T+1, those imbalances should ease. But they highlight just how tightly linked the fund and securities settlement ecosystems really are.

A Funding Environment Under Pressure

Perhaps the most pressing issue for fund firms is funding. The current T+3 or T+4 settlement cycles for many fund subscriptions and redemptions are increasingly out of step with the faster money movement needed in a T+1 environment.

Where a fund needs to buy securities that settle tomorrow, but can’t access subscription cash until two or three days later, there’s a gap to bridge. That often means drawing on cash

reserves or bank credit – options that are becoming more expensive as interest rates stay high and credit conditions remain tight.

The Importance of Automation

Automation has long been a theme in post-trade processing, but T+1 puts it firmly in the spotlight.

When the Accelerated Settlement Taskforce (AST) in the UK reviewed the US transition, one of the standout lessons was the cost of insufficient automation. Many firms found themselves scrambling post-implementation to handle an increased volume of manual exceptions. This led to higher headcount costs and greater operational risk.

From trade matching to asset servicing, manual processes are still commonplace in the funds industry. But as settlement cycles shrink, the window for resolving issues gets tighter. What previously took two days must now happen in less than one and that means automation is not just helpful, it’s essential.

Fund groups need to be asking whether their transfer agents, platforms and service partners are ready to operate in a faster, more time-sensitive environment. Are workflows streamlined? Can trade data and cash positions be reconciled in real time? Are payment instructions integrated directly with banking systems?

Without that readiness, the risk of settlement delays, failed trades or liquidity shortfalls increases dramatically.

Net Settlement: An Opportunity to Rethink the Model

Beyond automation, net settlement presents another key opportunity.

Most fund settlement today is still handled on a gross or trade-by-trade basis. That means a large volume of individual payments moving in and out daily – increasing friction, raising bank fees, and exposing firms to unnecessary liquidity swings.

Netting payments, by contrast, allows subscriptions and redemptions to be offset – drastically reducing the number of transactions and the cash exposure at any given moment. It also supports better liquidity management, simpler cash forecasting, and less reliance on intraday credit lines.

It won’t happen overnight. Moving to net settlement requires more coordination between participants and often demands that both parties operate on the same network or system. But the industry is starting to move in that direction – and T+1 may be the trigger that accelerates adoption.

Looking Ahead to 2027

With just over two years until Europe’s T+1 go-live date, the time to act is now. These are not small operational tweaks. They require real investment in systems, data, processes and counterparties.

Some fund groups may choose to wait until regulators apply direct pressure – but that would be short-sighted. As we've seen with the US transition, firms that wait often pay the price in rushed remediation work, temporary fixes and increased operational strain.

Instead, fund managers and their providers should view the 2027 timeline as an opportunity. An opportunity to modernise workflows. To improve transparency. To cut unnecessary costs. And to enhance the investor experience with faster, more certain settlement outcomes.

At Calastone, we continue to see growing demand from clients looking to automate their trade-to-payment lifecycle. The transition to T+1 will not just change how securities settle, it will reshape expectations for fund settlement too. The firms that act now will be the ones best placed to benefit when the new rules come into force.

Read more about developments in settlements and solutions on the Calastone website.