The Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) have raised alarm over operational risks within the Australian Stock Exchange (ASX), following the critical failure of the CHESS batch settlement system. The regulators have jointly written to the ASX, stressing their concerns about the reliability of the CHESS system until it is replaced and the slow pace of the ASX’s remediation efforts in response to the incident.
The failure of CHESS in December 2024, which caused settlement errors, has triggered a reassessment of ASX’s adherence to financial stability standards. In a rare move, the RBA has decided to evaluate ASX Clear Pty Limited and ASX Settlement Pty Ltd’s compliance with the RBA’s Financial Stability Standards outside of the regular review cycle. The RBA downgraded its assessment of ASX’s compliance with the “Operational Risk” standard from “partly observed” to “not observed,” marking a serious concern that demands immediate attention.
ASIC Orders Independent Review of CHESS
In addition to the RBA’s actions, ASIC has invoked powers under the Corporations Act 2001 to direct the ASX to engage an expert approved by ASIC to conduct a technical review of the CHESS system. This expert review aims to ensure that any operational issues are identified and rectified, providing greater confidence in the stability and resilience of CHESS for the future.
Regulators Demand Immediate Remediation
The regulators emphasized the urgent need for ASX to prioritize fixing the issues that led to the December 2024 incident. The joint statement underlined that the failure to act swiftly could lead to further regulatory actions. These actions may include the use of new powers introduced by reforms to modernize the regulatory framework for Financial Market Infrastructures, which came into effect in September 2024. Additionally, further rulemaking may be pursued under the ongoing Competition in Clearing and Settlement reforms.
With the ASX now under intense scrutiny, the regulators have warned that any further delays or inadequate responses could trigger more significant consequences. The urgency of the situation reflects the broader implications for the stability of Australia’s financial system and the need for swift and effective action by the ASX.
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