ASIC, RBA demand CHESS answers
In unprecedented regulatory action, sharemarket operator ASX must detail risks, functionality and capability of the existing platform after problems plagued its replacement project.
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Sharemarket operator ASX has until April 28 to provide ASIC and the RBA with a key report on the support and maintenance of its Clearing House Electronic Sub-register System (CHESS) after delays and problems plagued the go-live of the replacement system.
ASIC on Thursday issued notices to ASX Clear and ASX Settlement to provide the special report, addressing specific matters.
The report will be audited by Ernst & Young and provided to ASIC by May 31.
The report demands ASX identify and address risks to resilience, reliability, integrity and security of the ongoing operation of CHESS while detailing how it will ensure it’s functional and capable to accommodate current and future growth in trading volumes.
Security and governance arrangements will also need to be detailed.
CHESS is essentially the digital system used by the ASX to manage the settlement of share transactions and to record shareholdings.
“This is the first time ASIC has used this delegated power against an operator of licensed market infrastructure for the purposes of auditing the support and maintenance of a clearing and settlement system,” a joint ASIC-RBA statement said.
“ASIC’s immediate priority is to ensure current CHESS continues to provide the level of service, reliability and resilience that is required. This is important not just for industry but also for the Australian economy and investors,” ASIC chair Joe Longo said.
Reserve Bank Governor Philip Lowe said he expects to see further uplift by ASX with respect to its governance arrangements.
“The RBA expects the highest priority be given to ensuring the stability and resilience of the critical infrastructure supporting Australia’s cash equity markets. This needs to be the focus for current CHESS as well as in rethinking the design and implementation of its replacement.”
Further regulatory actions will be considered in relation to ASX’s decision to pause the replacement project last month after an independent review by Accenture, which angered regulators.
In response, ASX chief executive Helen Lofthouse, who took the top job in August, said ASX would co-operate with regulators and “is confident that current CHESS will serve the Australian market well into the future.”
“ASX will engage transparently and constructively with the regulatory agencies … We remain committed to working closely with stakeholders to deliver the best long-term clearing and settlement solution for the Australian financial market.”
The developments come after chairman Damien Roche and Ms Lofthouse doubled down on their defence of ASX’s handling of the troubled CHESS replacement project and its ability to come up with the best long-term solution at a Parliamentary Joint Committee on Corporations and Financial Services hearing.
ASX is in the midst of reassessing all aspects of the CHESS replacement project and has written-off $250m in associated development costs following its internal assessment and an independent review by Accenture, which found the draft delivery plan was “high risk.”
The current system came under pressure after record ASX trading volumes in March 2020 — around the start of the Covid-19 pandemic — which caused processing delays on CHESS.
Shares in ASX are down nearly one per cent to $68.52 at 11.15am AEDT, down 26 per cent for the year so far.
Originally published as ASIC, RBA demand CHESS answers
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