ESMA Completes EU Regulatory Framework for T+1 Settlement

The European Securities and Markets Authority (ESMA) on 16 October 2026 published the final report on its revised guidelines on standardised procedures and messaging protocols used between investment firms and their professional clients, declaring the European Union’s regulatory framework for the transition to T+1 settlement complete. The EU will switch to T+1 settlement on 11 October 2027, and the first deadline under the framework requires investment firms and their clients to comply with new requirements on allocations and confirmations from 7 December 2026.

In its press release, ESMA called on market participants to finalise technical preparations, assess readiness across their entire ecosystems and begin testing as soon as possible throughout the trading and settlement chain. ESMA said the regulatory framework is now ready with the publication of the amended Regulatory Technical Standards (RTS) on Settlement Discipline and the final report on the revised CSDR Guidelines.

Verena Ross, ESMA’s chair, described the transition to T+1 as one of the most impactful recent market structure initiatives and said it will fundamentally improve the efficiency and international competitiveness of the EU markets. “The date is known, the roadmap is clear, and, with the final piece of regulatory guidance published today, the framework is now in place for all players in the trading and settlement chain to prepare for 11 October 2027,” she said. Ross described a successful transition as a shared effort by the industry and the public authorities, adding that the focus now shifts to market participants to comply with the regulatory requirements, ready their systems and processes, and test their preparedness, considering the recommendations of the EU T+1 Industry Committee.

Revised Requirements for Allocations and Confirmations

The revised guidelines clarify how market participants should meet the new requirements on allocations and confirmations introduced by the amended RTS on Settlement Discipline. From 7 December 2026, these include the mandatory use of electronic, standardised communication channels and international messaging standards, and of machine-readable communication methods, except in cases of temporary technical disruptions. The requirements apply to transactions in financial instruments referred to in Article 5(1) of the Central Securities Depositories Regulation (CSDR): transferable securities, money-market instruments, units in collective undertakings and emission allowances.

The final report removes the previous possibility for professional clients to communicate allocations and confirmations orally. It clarifies that emails and graphical user interfaces are non-exhaustive examples of compliant electronic communication methods, provided their content meets the machine-readable format definition in Article 2(13) of Directive (EU) 2019/1024, which “means a file format structured so that software applications can easily identify, recognise and extract specific data, including individual statements of fact, and their internal structure”. ESMA agreed that graphical user interfaces involving manual intervention may constitute an appropriate solution for professional clients with low transaction volumes or smaller firms, as long as the resulting output is structured in a machine-readable format capable of being automatically processed by the investment firm’s systems. Professional clients engaging in high-volume or frequent transactions are expected to limit any manual intervention and to base the exchange of allocations and confirmations on automated solutions.

The guidelines delete the earlier optionality under which a professional client could choose internal or domestic messaging standards; ESMA stated that only international open standards meeting the definition in Article 2(1)(34) of the CSDR are considered compliant. Arrangements between investment firms and professional clients may be documented in any legally binding form, with the original reference to a specific framework agreement removed. In cases of duly documented temporary technical unavailability or service disruption, alternative methods such as mail, faxes or other non-machine-readable electronic means may be used, and phone calls are permitted only if recorded in accordance with Article 16(7) of MiFID II and Article 76 of Commission Delegated Regulation (EU) 2017/565. ESMA recommended that postal mail and fax be the least preferred contingency options, citing the risks of errors associated with the manual intervention required.

Legislative Chain and Phased Application

Article 6(2) of the CSDR requires investment firms to establish arrangements with their professional clients to ensure the timely settlement of securities transactions, an obligation further developed by Articles 2 and 3 of the RTS on Settlement Discipline. ESMA published the original guidelines in October 2019.

After an ESMA assessment mandated by the CSDR Refit concluded that shortening the settlement cycle in the EU would provide benefits in terms of risk reduction, margin savings and the reduction of costs linked to misalignment with other major jurisdictions, the European Parliament and the Council set the EU transition to T+1 for 11 October 2027 in Regulation (EU) 2025/2075 of 8 October 2025. ESMA published its draft amendments to the RTS on Settlement Discipline on 13 October 2025, and the Commission endorsed them on 6 July 2026 as Commission Delegated Regulation (EU) 2026/1536, published in the Official Journal of the European Union on 14 October 2026. The amended Articles 2 and 3 apply from 7 December 2026.

The amended RTS phases in further measures on 1 July 2027, including reporting of top failing participants and enhanced public disclosure by central securities depositories on settlement fails, and on 11 October 2027, including the timing for sending settlement instructions, hold and release, auto-partial settlement, auto-collateralisation and RTGS and/or batches.

ESMA published its consultation paper on the guidelines revision on 26 May 2026 and conducted the public consultation between the end of May and the beginning of July 2026. The final report cites readiness surveys conducted by the EU T+1 Industry Committee indicating that, while the level of awareness and readiness had increased, a significant part of the industry had not yet undertaken the adaptations required for the transition to T+1, particularly in relation to allocations and confirmations. According to the first survey’s results, 56% of respondents could be late in issuing allocations and confirmations on T+0 by the end of 2026, against the 7 December 2026 effective date of the related RTS provisions.

ESMA rejected requests from some respondents for a transitional period running to the end of March 2027, stating that the relevant RTS provisions will enter into application on 7 December 2026 regardless and that neither the amended RTS nor Article 6(2) of the CSDR provides for such a period. The EU-UK-CH T+1 Testing Plan, published in March 2026, sets the first testing window for the EU in April 2027.

In its cost-benefit analysis, ESMA concluded that the amendments support greater automation, increased straight-through processing and improved settlement efficiency, while acknowledging that the main implementation impact is expected for smaller, less automated firms, regional banks and some professional clients.

Following translation into all EU languages, the revised guidelines will be published on ESMA’s website and will become applicable on 7 December 2026, at the same time as the relevant provisions of the RTS on Settlement Discipline. The specific guidelines amended by the final report will be repealed upon the entry into force of the revised guidelines.