UK capital markets to be reshaped by tokenisation & T+1 shift

The structure of financial markets is set to undergo significant changes in 2025 and 2026, with a shift towards the digitisation of settlement processes and increased industry collaboration expected to reshape UK capital markets.

Digital assets continue to gain traction among major financial institutions, with an increasing number exploring tokenised representations of bonds, funds, collateral and alternative assets. Despite this, current efforts have largely been limited to the digital representation of underlying assets, while operational workflows remain anchored to outdated and manual processes. Richard Baker, Chief Executive Officer at Tokenovate, said, "Tokenisation has become one of the fastest-growing areas in capital markets this year. Major institutions have accelerated their exploration of digital representations of bonds, funds, collateral and alternative assets, all in pursuit of greater capital efficiency and better risk management."

Baker highlighted that if tokenised assets continue to pass through legacy processes, the fundamental problems associated with liquidity and operational risk will remain. He said the industry should focus more on tokenising the settlement layer: the post-trade processes that encompass the movement of value, lifecycle events and finality. "If tokenised assets continue to move through legacy processes, we're simply transferring yesterday's workflow into tomorrow's instruments. Liquidity stays trapped, and operational risk persists," said Baker.

The shift towards digitised settlement processes is viewed as the core element that will unlock liquidity, reduce exposures, and lower operating costs. "In 2026, the fundamental shift will come from tokenising the settlement layer: the movement of value, lifecycle events and finality that occur after the trade. That is what will genuinely free liquidity, materially reduce exposures and lower operating costs in faster, more continuous markets," said Baker.

As the market approaches a T+1 settlement cycle deadline in 2027, there is mounting urgency for firms to accelerate preparations. Some industry providers have been slow to adapt, presenting a risk not just to themselves but to the broader transition. "As we close out the year, it's encouraging to see momentum building around T+1 preparations, but the window for meaningful action is narrowing quickly. Firms will need to accelerate their efforts in 2026, particularly given the worrying lack of urgency among some critical service providers. Without proper readiness, they risk not only losing clients but putting the wider transition under strain," said Baker.

Baker warned that T+1 should not be seen as a final target, but part of a longer journey towards near real-time settlement. "Looking ahead, firms shouldn't view 2027 as the finish line. It's simply another milestone. T+1 alone won't address the deeper structural fragmentation that continues to trap liquidity and heighten operational risk. The real transformation will come as markets move beyond 'faster settlement' towards real-time settlement. Research shows that shifting from T+1 to T+0 could cut exposures by up to 80% during periods of market stress, and that future is approaching far sooner than many expect," said Baker.

He suggested that firms investing in automation, shared data standards, and event-driven workflows will be better placed to operate in a compressed post-trade environment. "In the year ahead, the firms that stand out will be those preparing for life after T+1. By investing now in automation, shared data standards and event-driven workflows, they will build the resilience and agility needed for an increasingly compressed post-trade environment," said Baker.

Baker pointed to the UK’s continuing strong position in shaping the future of financial infrastructure, supported by government and regulatory initiatives such as the Digital Securities Sandbox and the DIGIT framework. While these developments are progressing quickly, he noted that many similar projects are being developed in isolation, which can create new complexities rather than streamline market operations.

"As 2025 comes to a close, the UK remains well-positioned to play an important role in the next phase of financial market modernisation. The global landscape is shifting quickly, with governments exploring stablecoins, tokenised bonds, blockchain-based settlement and smart contract-driven workflows. Still, many of these initiatives are being developed in isolation, adding new layers of complexity rather than reducing it," said Baker, Chief Executive Officer, Tokenovate.

He emphasised the importance of efforts such as the Common Domain Model to provide a consistent framework and drive interoperability between legacy and digital platforms. Baker also underscored the need for collaboration across financial infrastructure, technology, and policymakers to enable broader adoption of new market models and legal certainty.

The expansion of tokenisation and moves toward faster settlement are increasing the risk of fragmentation, with different systems and data standards still operating in silos. Consistent workflows and unified processes across platforms are being regarded as necessary to ensure liquidity is not trapped and digital assets can move freely.

Baker said that delivering interoperability should be a key priority in 2026. He noted that market efforts are turning towards lifecycle models and automated processes that enable seamless settlement, regardless of underlying technology, setting a foundation for broader market changes. "As tokenisation expands and markets move toward faster settlement, fragmentation remains a significant obstacle. Different chains, data standards and legacy systems still operate in silos, each holding its own view of a trade. Even with digital assets, this lack of alignment traps liquidity and limits mobility," said Baker.