The Bank of England (BoE) released the minutes of its September meeting of the Securities Lending Committee with T+1, gilt market repo resilience and securities financing vendors among the agenda items.
On T+1, the committee discussed the upcoming draft legislation. They noted that the government plans to publish a draft statutory instrument for comment, with an accompanying policy note explaining the approach, by the end of 2025.
Mentioned was the importance of automation ahead of the 11 October 2027 deadline. The UK Financial Conduct Authority (FCA) is engaging with firms as part of ongoing supervision, to confirm preparation and readiness for testing which commences in 2026. Engagement will be augmented with publication of the FCA blog due in October, which will set out key points and good practice for end-to-end settlement processes.
Members commented on the necessity to confirm solutions for cross-border collateral settlements and market sales executed at market close, ahead of the 2027 deadline which will require collaboration and enhanced resourcing. Compressed settlement may lead to an increased risk for participants and impact the type of business firms are able to conduct.
The Committee noted a reticence to invest in digitalization, which requires a consolidated agreement across industry, to progress. Focus has been on T+1 implementation for legacy systems and processes and enhancing existing industry solutions rather than investment in the future look of securities finance.
On repo market resilience, members noted the difficulty of implementing haircuts with cross-product margining practices where banks apply haircuts across a managed client portfolio.
Members raised concerns around a deterioration in corporate action payment discipline noting focus may be redirected to implementing electronic solutions in other parts of the transaction chain. Drivers of the decline include mismatched instructions at important dates in the corporate action calendar. Vendor solutions are available and participants expect an improvement across the market as automated solutions are implemented and penalties take effect.
Related to securities financing vendors, members discussed the increased requirement for automation across the securities finance industry and vendor solutions. A diverse range of solutions is available, tailored to business requirements and budget with several new entrants into the market recently.
Fragmentation of inventory and a reduction in liquidity remains a concern. It was noted that industry has a part to play in demanding best practice solutions and interoperability via purchasing power. This is seen as critical as firms increase use of automation and electronic solutions across products and jurisdictions. The committee said it will consider the benefits of a digital sub-group to inform the Committee of change in this landscape.