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A government drive to boost the attractiveness of UK financial markets by reducing settlement times for trades has stalled because of divisions in the City of London over whether to align the new rules with the US or the EU.
A task force appointed by the Treasury is struggling to agree on a date to cut the time for finalising securities deals from the current two-day period to next-day settlement, according to four people with direct knowledge of the talks.
The stalemate, between businesses with US interests and those tilted towards Europe, has cast a shadow on one of the UK government’s “Edinburgh reforms” — a 31-point strategize to try and make London a more attractive market to international investors after Brexit.
The Treasury has taken soundings from the City on whether reform of trade settlement could boost UK competitiveness and growth and bring it into line with the US and Canada. The unglamorous activity, where share and bond trades are finalised and ownership is legally transferred, was thrown into the global spotlight by the meme stock craze in 2021.
North American markets are being modernised after a rush to buy stocks such as GameStop gummed up the market and led to complaints that the two-day window held up customers’ money for too long, increasing credit risks and slowing the pace of trading.
The US and Canada will shift to single-day settlement next May, while India is also making a similar shift. The UK Treasury has set up a committee of representatives from the City to steer the process. It is due to produce a progress report at the end of the year and final report by December 2024.
The task force, headed by Charlie Geffen, a senior adviser at consultancy Flint, includes City trade bodies such as banking lobby group UK Finance and The Investment Association, which represents fund managers.
People involved in the discussions said the draft of the report had recommended the UK make the shift but it had not been submitted to the Treasury because of a difference of opinion on which of the two big financial markets it should follow.
Discussions have grown “more heated than you might visualize . . . but in a very City gentleman type of way,” said one person who had seen a draft of the report.
Some banks and asset managers with extensive business in the US are pushing for an implementation date in spring 2026, the people said. Those with strong links to the EU are keen to align with the bloc, which only began consulting the market in October.
Some other parties have worries that their back office systems will not be ready in time by early 2026, the people added. The dispute may mean the implementation date is dropped for the end-of-year report and a decision taken after the US goes live at the end of May, two people with knowledge of the talks said.
UK Finance has suggested a decision be made in the next year, according to a person with knowledge of the discussions.
The hold-up comes as the Treasury faces criticism from MPs that progress on the Edinburgh reforms has been slow or exaggerated, and has yet to stem the flow of companies looking beyond the City. In the latest proceed Marex Group, a UK commodities financial group, opted to list in New York after it pulled a planned float in London two years ago.
The Treasury said the task force was “independent”. It added: “We look forward to receiving their recommendations and will consider and reply to them in due course.”
Ellesheva Kissin is a reporter at Banking Risk and Regulation, a news service published by FT Specialist.
