The two government bodies charged with oversight of the Australian Securities Exchange (ASX) have taken action to ensure it quickly deals with the potential failures of the Clearing House Electronic Subregister System (CHESS) to prevent any further outages such as the one that occurred on 20 December 2024.
During the outage, the ASX was unable to complete batch settlement for cash equity transactions that took place that day and had to reschedule them to the following day.
The Reserve Bank of Australia (RBA) and Australian Securities and Investments Commission (ASIC) outlined their concerns in an open joint letter, which stated they “are increasingly concerned and deeply disappointed over the management of operational risk at ASX following the CHESS batch settlement failure” late last year.
“Specifically, the regulators have concerns about the potential for such an incident to occur. This includes the implications for the ability of the CHESS system to reliably service the Australian equities market until CHESS is replaced,” the letter, signed by RBA governor Michele Bullock and ASIC chair Joe Longo, said.
Additionally, the two bodies added they were also concerned about the management of the incident during its occurrence, including communications to stakeholders and the regulators, and the speed and nature of ASX’s remediation actions following the incident.
Given the RBA and ASIC are co-regulators with different responsibilities, they have taken separate actions.
The central bank has reassessed the compliance of ASX Clear Pty Limited and ASX Settlement Pty Ltd with its Financial Stability Standards outside the usual annual assessment cycle and downgraded its assessment of these entities’ compliance with its operational risk standard from partly observed to not observed.
This grading is given when the RBA identifies serious issues of concern that warrant immediate action.
In addition, the corporate regulator has directed ASX, under section 823BB(4) of the Corporations Act 2001, to engage an expert approved by the regulator to undertake a technical review of CHESS, with the subsequent report of the review to be made public.
Commenting on the letter and regulatory actions, Bullock said: “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.”
Longo added: “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.”
