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OCC issues guidance for banks as US prepares for T+2

09 June 2017  |  4516 views  |  0 Source: OCC

The OCC expects that as of the T+2 compliance date, in accordance with industry standards and applicable securities and self-regulatory organizations’ rules for securities clearance and settlement, banks will not effect or enter into a contract for the purchase or sale of an affected security that provides for payment of funds or delivery of securities later than the second business day after the date of the contract, unless otherwise expressly agreed to by the parties at the time of the transaction.

The OCC expects banks to be prepared to meet T+2 standards as of September 5, 2017.

Bank management and the board of directors should employ effective change management processes and provide effective oversight to ensure banks are prepared for this industry-wide change. Preparation includes identifying all lines of business, products, and activities that involve securities settlement and servicing. Bank management should monitor the progress of industry participants as preparation and testing are coordinated and completed. This monitoring includes regulatory changes that affect securities settlement and servicing, system and process changes at financial market utilities, custodians’ system and process changes, and third-party system or service provider changes.

Based on the nature and scope of banks’ securities processing activities, bank management should determine what system and process changes or outreach may be needed for a smooth transition to T+2. Bank management should establish and follow an appropriate project plan for implementation. Issues management should consider when developing the project plan include

changes to investment accounting, 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 agreements and disclosures that reflect settlement time frames.
client communication.
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 front, middle, and back office employees.
enhanced focus on risk management practices, risk metrics, and surveillance systems to effectively identify and address potential increases in failed trades or processing exceptions.
staffing and contingency planning for the days leading up to and immediately following implementation.

For broad risk management guidance for implementing product changes, national banks should refer to OCC Bulletin 2004-20, “Risk Management of New, Expanded, or Modified Bank Products and Services,” and federal savings associations should refer to “New Activities and Services,” section 760 of the Office of Thrift Supervision Examination Handbook.

For many banks, the majority of the changes needed to implement T+2 will be completed by third parties—industry utilities, custodians, systems and service providers, broker-dealers through which banks trade for themselves or on behalf of their fiduciary and custody accounts, and broker-dealers providing retail brokerage services to bank customers. For guidance on assessing and managing risks associated with third-party relationships, banks should refer to OCC Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” October 30, 2013.

Banks are also encouraged to refer to the comprehensive industry website, T+2 Settlement, at ust2.com for further guidance on how to prepare for this change.

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