Bank of England committee flags T+1 and digital infrastructure risks for UK securities lending market

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BOE flags T+1, digital market risks

Highlights

Bank of England Securities Lending Committee reports T+1 settlement implementation for UK securities lending is broadly on track for October 2027, but firm readiness remains uneven.
Committee highlights ongoing operational challenges with tax reporting, collateral sourcing, and workforce retention, emphasizing risks of accelerated settlement without further tax harmonisation or operational adaptation.
Rising adoption of digital assets, tokenisation, collateral mobility and AI efficiency prompts regulatory attention, with legal uncertainties over transaction characterisation potentially impacting market structure and contractual certainty.

T+1 readiness and tax pressures

As reported by Bank of England, minutes from the Securities Lending Committee's 15 September 2026 meeting show industry participants are broadly on track for T+1 implementation in October 2027, although readiness varies significantly between firms.

The committee says operational challenges persist around securities lending recalls, collateral sourcing, funding, settlement timing, partial settlements and agent lender capabilities. Members note that future competitiveness may depend on collateral agility, automation, real-time processing and the ability to support same-day operational workflows.

The SLC Tax & Regulations sub-committee also highlights increased operational strain from holding-period rules and record date requirements across national tax regimes. The group says accelerated settlement could amplify existing issues if firms do not adapt, reinforcing the need for greater tax harmonisation and closer monitoring of tax-related risk across jurisdictions.

The meeting also covers workforce issues, with members discussing strategies to attract and retain early-career talent in securities finance. These include wider opportunities for staff to build experience across firms and leadership programmes intended to improve alignment across the workforce.

Digital assets, AI and market structure

The committee also reviews business growth, capital optimisation and broader market evolution in securities lending. Members point to increased use of central counterparties, collateral efficiency mechanisms and smart collateral structures, while also identifying growth opportunities in newer markets and the rising importance of digital asset initiatives, including tokenisation programmes.

Discussions on digital collateral focus on how infrastructure projects could eventually reshape financing markets. Members say upcoming regulatory developments, mandatory clearing requirements and operational changes could affect lenders, borrowers and investment funds over the coming years.

On digital market infrastructure, the group notes regulatory developments supporting tokenisation, digital securities, collateral usage and related programmes, while multiple industry working groups are examining repo, collateral mobility, payments, legal frameworks and digital securities issuance. Members say practical use cases remain the main challenge and discuss a legal case involving the possible re-characterisation of a securities financing transaction as a secured loan, which could carry significant implications for repos, securities lending and contractual certainty.

The committee also says artificial intelligence adoption is still mainly driven by efficiency rather than fully autonomous decision-making. Current uses tend to focus on administrative tasks, information retrieval, data aggregation, recall processing and greater transparency across funding and collateral books, although members say AI could increasingly influence trading activity, client selection, collateral mobility and decision-making.

Concerns remain over governance, resilience, vendor oversight and data security, particularly if AI systems gain access to sensitive operational data. The meeting closes with no further business.

The Bank of England’s push for “bare metal” cyber-recovery planning highlighted how AI is increasing the scale and complexity of cyber threats to financial institutions. Our earlier coverage noted regulators’ growing expectation that banks maintain independent recovery options for critical services and strengthen end-to-end operational resilience as AI-driven risks become more systemic.

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