FDIC Reminds Banks to Prepare for Transition to T+2 Settlement Cycle

The FDIC outlined steps that banks must take in preparation for the forthcoming change to the standard settlement cycle. The change in the settlement cycle will become effective on September 5, 2017. The rule changes adopted by the SEC and the MSRB will shorten the standard settlement cycle for most securities transactions from three business days after the trade date ("T+3") to two days ("T+2").

In a Financial Institution Letter, the FDIC advised the institutions it regulates to identify all internal lines of business and operations that pertain to or involve securities settlement. The FDIC also recommended the monitoring of regulatory changes that affect securities settlement.

To prepare for the impending changes properly, the FDIC advised banks to develop and adhere to a "project plan" for implementation that takes the following issues into consideration:

• "Changes to trust accounting or other securities processing systems";

• "Changes to operational procedures for securities clearance and settlement, income processing, corporate action processing, and securities lending";

• "Changes to client communications, agreements and disclosures that reflect settlement timeframes";

• "Oversight of third parties' T+2 implementation processes";

• "Changes to service level agreements with third parties providing trade clearance and settlement, income processing, or other services affected by T+2 implementation";

• "Training for employees that deal with securities clearance and settlement";

• "Heightened focus on risk management practices and surveillance systems to effectively identify and address potential increases in failed trades or processing exceptions"; and

• "Contingency planning and staffing for the days leading up to and immediately following implementation."

The letter also referenced an FDIC Financial Institution Letter, titled "Third-Party Risk," as a resource for banks that seek to manage the T+2 implementation process effectively.