ASX commits to RBA-mandated report‘s conflict of interest recommendations

The ASX will implement 13 recommendations from a Reserve Bank of Australia-mandated report on managing intra-group conflicts of interest.

ASX CEO Helen Lofthouse and ASX Chairman Damian Roche.

The ASX has vowed to implement 13 recommendations from a Reserve Bank of Australia-mandated report that found the bourse had a “sophisticated” framework to identify and handle intra-group conflicts of interests, but it could be improved.

The expert report released on Friday comes as ASIC, the market regulator, also ordered an industry advisory group to be formed following stakeholder complaints about how the ASX has handled conflicts around its disastrous CHESS replacement project.

The report by Herbert Smith Freehills says the ASX, which operates the clearing and settling of cash equities monopoly in the country, alongside its wider securities trading operations business, has a “sophisticated” framework to manage such conflicts.

“The existing framework for conflict identification and management within ASX Group is sophisticated and consistent with the framework we would expect from a listed group of the complexity and scope of potential conflicting operations of the ASX Group,” the report says.

The company committed to implementing the majority of the 13 recommendations in the expert report – which was asked by the Reserve Bank of Australia in December last year – within three months.

The review focused solely on current intra-group conflicts arising from competing interests between the ASX’s commercial interests and its regulatory obligations as operators of clearing and settlement licensee subsidiaries ASX Clear and ASX Settlement when operating the Clearing House Electronic Subregister System (CHESS) and its replacement project.

Improvements the ASX has made as a result of regulatory intervention over the past two years, means that “the governance framework that now applies within the ASX Group has been updated significantly,” the report says.

On top of improvements required by the RBA, the ASX also implemented a number of extra governance measures, including having a non-ASX chair for the licensee entities, ASX Settle and ASX Clear. Those non-ASX directors are now also invited to meetings by the people, culture and board nomination committees.

ASX chairman Damian Roche said the report “demonstrates that improvements we’ve made to governance are making a difference. We need to be transparent about the work we’re doing and I’m hopeful this report gives further confidence to our stakeholders that we have appropriate conflict management arrangements in place.”

The recommendations include that guidance on how to handle intra-group conflicts be widely explained, not just to directors of the clearing and settling licensees. Its handbook currently does not include any guidance on intra-group conflicts, such as how to handle competing funding requests for technology upgrades.

Several stakeholders have criticised the way the bourse handles conflicts of interests both within its units and externally.

Last month the architects of the original now-halted CHESS replacement project, Digital Asset, told a parliamentary joint committee that attempts by the ASX to cling on to core components of the CHESS system, coupled with an unwillingness by insiders in the market operator to hand over critical data, made it extremely difficult to build the now-halted blockchain-based platform.

Top trading technology company FinClear has called for regulators to force the ASX to divest its clearing and settlement monopoly to be run by industry, as a way to ensure the bourse cannot put its interests above the wider market.