Australian
financial regulators have taken unprecedented action against the country’s exchange
ASX following a major operational failure in its critical CHESS settlement
system, highlighting growing concerns about the exchange operator’s risk
management capabilities.
RBA and ASIC Downgrade ASX
Over CHESS Settlement Failure
The Reserve
Bank of Australia (RBA) has downgraded its assessment of ASX Clear and ASX
Settlement’s compliance with the “Operational Risk” standard from
“partly observed” to “not observed” – the first time such a
reassessment has occurred outside the regular annual cycle. This rating
indicates serious issues requiring immediate action.
Simultaneously,
the Australian Securities and Investments Commission (ASIC) has directed ASX to
engage an independent expert to conduct a comprehensive technical review of the
CHESS platform, which handles clearing and settlement for Australia’s equities
market.
“Our
actions underscore our increasingly deep concerns with ASX’s management of the
CHESS system, and we will continue to consider further action. It is troubling
that these risks were realised in this major incident,” said ASIC Chairman Joe
Longo.
Regulatory Concerns Mount
After December Failure
The
regulatory actions follow a significant CHESS batch settlement failure on
December 20, 2024, which disrupted Australia’s equities market. Both
regulators expressed “deep concerns” about ASX’s management of
operational risk and its response to the incident.
“It is
deeply disappointing that the regulators need to take these actions today. But
they are necessary,” commented RBA Governor Michele Bullock. “ASX
operates critical infrastructure that plays a central role in the financial
system. ASX’s management of operational risk has been a concern for RBA staff
and the Payments System Board for some time.”
Technical Review to
Address Systemic Issues
The
mandated technical review will examine multiple aspects of the CHESS
system, including:
- Technical
architecture and code quality - Infrastructure
reliability and scalability - Staffing
resources and capabilities - Technical
delivery practices and processes - System
observability and change management - Third-party
support arrangements
ASX must
appoint an approved expert within 42 days, with an interim report due within 90
days of appointment and a final report 60 days later. A redacted version of the
final report will be made public.
Potential for Further
Regulatory Action
The
regulators warned they are prepared to take additional steps if ASX fails to
address the issues promptly, potentially using new powers granted under
financial market infrastructure reforms enacted in September 2024.
The
incident has raised questions about ASX’s ability to maintain the current CHESS
system reliably until its replacement is implemented. ASX had previously given
a public undertaking to the RBA in December 2022 regarding the system’s
continued operation.
This article was written by Damian Chmiel at www.financemagnates.com.
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