By 2027, following on from the US, India and China, the EU will adopt a T+1 settlement cycle for securities – that is, trades will be settled one working day after the trade date. With the world moving to T+1 across the financial industry, funds across Asia that currently run T+2 or T+3 cycles will likely need to follow suit. But meeting these shorter cycles will require a fundamental shift in both behaviour and approach, especially with demand for cross-border investments expanding across the region. For Asia to cement its position as a global asset management hub, settlements – traditionally seen as a back-office concern – must become a strategic lever for growth.
System pressures make automation essential
The blocker for many firms in Asia remains their existing infrastructure, with legacy, batch-driven systems unable to support real-time or T+1 settlement models. However, until recently, there has been little incentive for Asia’s fund industry to shorten settlement times and automate their settlements. Settlements have traditionally been handled by the banks, which offered attractive rates and low risk.
But the shift is long overdue. Consultations have already begun in Singapore to introduce a T+1 deadline of its own, and other regulators in the region are likely to follow. Meanwhile, the pressure on the system is increasing.
Asian investors are increasingly looking overseas for portfolio diversification. In our 2024 survey, almost 90% of the respondents considered increasing global diversification for local investors as very or extremely important. Inbound flows of overseas investment are fuelling significant growth in the region too. Singapore, for example, sourced 77% of its AUM from international investors in 2024, of which 89% was invested outside the country, according to the Monetary Authority of Singapore. As the appetite for global market diversification has grown among domestic investors, and cross-border investment continues to flow in, these manual settlement systems have proven highly fragmented, expensive and inefficient.
For one thing, the discrepancies between each jurisdiction’s rules and processes present a complex operational challenge. Working around banking hours and Asia’s midday cut-off times for settlement processing adds another challenge: what is nominally a T+1 cycle often functions more like T+1.5, but under T+1 that will effectively shrink to T+0 – placing pressure on firms to manage trades in a much narrower window.
Any delays in settlement expose participants and assets to post-trade issues, such as settlement failures, trade term discrepancies, or late confirmations. The impact of the US’s move to T+1 in 2024 on ETF trading – which left authorised participants exposed to market fluctuations and increased costs due to mismatched settlement cycles – should be seen as a cautionary tale for the funds industry.
At the same time, margins are increasingly being squeezed by rising labour costs and volatile geopolitical situations, especially in the US. As banks raise interest rates in response to high inflation, even a short settlement delay can result in significant borrowing costs.
It all highlights the need for greater automation.
Controlling costs and closing in on competition
Calastone Settlements streamlines the settlement process, automating calculations and payments across any bank and in any currency, enabling client firms to meet the settlement requirements of any jurisdiction in the world. That means a single connection to the Calastone network, rather than having to connect to multiple trading partners individually.
Automating the post-trade process is a means of cost control, and it represents a much-needed cohesive system in a period of disruption. However, beyond reducing overhead costs, automated settlements also offer better visibility, through real-time position tracking that lower risk and enable better liquidity management.
Further, delivering frictionless processes will build confidence in fund platforms, particularly among global investors – helping the Asian fund ecosystem continue to enable investors to diversify. In a region where global expansion is clearly a priority, settlement automation becomes a strategic differentiator: funds that respond to changing investor demands and the impacts of global tariff adjustments by delivering faster, consistent, cross‑border settlements will have the edge on competitors.
Positioned for progress
With two years until Europe’s T+1 deadline, now is the moment for funds in Asia to move beyond manual processes and embrace automated, scalable infrastructure.
While there is some inertia borne of traditional industry norms and a perceived lack of urgency around settlements, there’s reason to be optimistic. By and large, the Asian asset management space is far ahead of many of its overseas competitors – and this is not a region afraid of innovation.
The firms that treat settlement automation as a strategic priority rather than an afterthought will lead Asia’s next phase of mutual fund growth. Once they are T+1 ready, the groundwork for instant T+0 settlements has already been laid.
