The Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) have responded to growing concerns about operational risks at ASX, following a settlement failure in December 2024. The regulators issued a joint letter to ASX, emphasizing the risks posed by incidents such as the recent CHESS batch settlement failure, which may impact the CHESS system's reliability in servicing the Australian equities market until its replacement.
In a departure from routine procedures, the RBA has reassessed the compliance of ASX Clear Pty Limited and ASX Settlement Pty Ltd with its Financial Stability Standards, downgrading their status from "partly observed" to "not observed" concerning the "Operational Risk" standard. This indicates serious issues requiring immediate action.
Moreover, ASIC has instructed ASX to commission a technical review of CHESS through an expert approved by ASIC. This initiative aims to assure regulators and the public regarding the stability and resilience of the current CHESS platform.
RBA Governor Michele Bullock remarked, "It is deeply disappointing that the regulators need to take these actions today. But they are necessary. 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, and the recent CHESS incident has underscored those concerns. The underlying issues that we have raised need to be addressed as a matter of priority to strengthen the resilience of the CHESS system."
ASIC Chair Joe Longo stated, "Our actions underscore our increasingly deep concerns with ASX's management of the CHESS system, and we will continue to consider further action. The technical review of ASX’s core technology infrastructure is necessary given the ongoing concerns the regulators have raised about ASX's operational resilience. It is troubling that these risks were realised in this major incident."
The regulators expect ASX to prioritize rectifying the issues that led to the 2024 incident. Failure to act could lead to further regulatory measures, possibly invoking new powers under recent reforms aimed at modernizing the Financial Market Infrastructures regulatory framework.
The RBA and ASIC are responsible for the oversight of licensed clearing and settlement (CS) facilities. Their duties include ensuring compliance with obligations that services are provided fairly and effectively. The RBA supervises from a financial stability perspective, possessing the authority to set stability standards to promote systemic stability.
ASIC's latest regulatory actions are separate from its ongoing investigation into ASX Settlement Pty Ltd for potential contraventions of the Corporations Act.