As European banks make final preparations for T+1, it is technology teams that face the biggest challenge under the new one-day payment system. Guy Warren, CEO of ITRS, talks about the key risks and the steps that can be taken to adapt to them.
The long-awaited transition to T+1 has begun in the United States. The move to one-day payments heralds a major change in the financial landscape, presenting both opportunities and challenges for banks. However, it is often overlooked technology teams within banks that are under the most pressure to ensure their IT operations adapt to this transition.
For any bank, an IT outage has serious implications, from lost revenue to reputational damage. These effects are even more severe at T+1. Tight settlement timelines mean that most post-trade activities (matching, assignment, confirmation, confirmation, submission) must be completed by 9:00 PM ET on the trade day. Therefore, if a bank suffers an outage, it can dramatically impact its ability to settle transactions within 24 hours.
It also increases the risk of IT issues due to human error. Tight payment deadlines and time zone differences can mean that staff at European banks are forced to work long hours after closing hours. The transition to T+1 could lead to an increase in IT issues due to human error, as stress and fatigue increase the risk of unconscious mistakes.
Technology teams face these risks in an increasingly stringent regulatory environment. In January 2025, the Digital Operational Resilience Act (DORA) will go into effect. The law aims to strengthen IT security for financial institutions, including banks, by introducing a set of new requirements for reporting large-scale IT incidents, managing third-party IT risks, and testing digital operational resilience. I am.
As a result, banks could face fines and fines under the new standards if they fail to effectively mitigate or identify IT issues.
Given these challenges, banks’ technology teams will be under new pressure to ensure a smooth transition to a T+1 environment. Here are some steps they can take:
- Stress testing and risk assessment – Conducting comprehensive stress tests and risk assessments is essential to identify vulnerabilities and potential areas of weakness in your existing infrastructure. Technology teams should analyze critical business functions, systems, and processes to predict how they will perform under shorter payment deadlines. These assessments will provide valuable insight into where enhancements or adjustments are needed to avoid future IT issues.
- Budget review – The technical team must ensure that budget allocations are consistent with the strategic priorities and requirements of the new one-day payment system. This includes investing in proven technology as well as allocating funds for ongoing maintenance. Banks should seek to continually review this budget to minimize the risk of underinvestment or resource constraints after T+1 takes effect.
- Update legacy frameworks with new technologies – Banks should use stress testing processes to identify areas where traditional frameworks may be insufficient to meet T+1 payment demands. Introducing new technology into your IT systems, such as monitoring and observability tools, not only helps streamline back-office operations, but also greatly increases visibility into your IT assets. Monitoring tools give your bank’s technology team a single pane of glass into your back office, allowing them to quickly detect and respond to issues as they arise.
- Define clear roles and responsibilities – Establishing a clear responsibility model is essential to effective incident management and response. This includes identifying key stakeholders, assigning specific duties, and establishing communication channels for rapid response and resolution. By clarifying roles and responsibilities, banks can create a more streamlined decision-making process, enabling more agile and consistent responses to IT challenges. As part of this, banks need to practice possible scenarios and rehearse their responses.
Modern systems must be resilient enough to handle T+1 demands. This means banks need to cover every corner of their back offices to prepare for this change. This is not only a regulatory requirement, but also important for banks in an increasingly competitive environment where business continuity and customer retention are more important than ever.
While T+1 will undoubtedly bring considerable headaches, it is also a great opportunity for banks to review their current infrastructure and future-proof their IT assets for years to come.
