The 20-year-old joined Arsenal from Ajax in the summer of 2024 and has spent the past season playing 11 competitive matches for the club's Under-21 side, along with a single FA Cup appearance for the senior team.
According to Telegraph journalist Sam Dean, Las Palmas have shown interest in the England youth international, with the two clubs now working on a season-long loan that would give Setford regular first-team football in Spain's second tier.
Arsenal's decision to sign former Leeds United goalkeeper Illan Meslier on a free transfer this summer is understood to be a key factor behind the move, adding a third senior option behind the pecking order and freeing Setford to gain experience elsewhere after limited opportunities at the Emirates.
The champions of England have been relatively quiet in this area of the market compared with last summer, but the Setford loan would represent a sensible step in his development regardless.
Arsenal are working through the finer details of the deal with Las Palmas, who are looking to add further goalkeeping options for the coming season, with an agreement expected to progress in the coming days.