Media Release ASIC – RBA Further Regulatory Response Regarding the ASX CHESS Replacement Program

Today ASIC and the Reserve Bank of Australia (RBA) (the regulators) have taken further action to ensure that all necessary steps are taken by ASX to support and maintain current CHESS until its replacement is successfully implemented.

ASIC issued notices to ASX Clear Pty Ltd (ASX Clear) and ASX Settlement Pty Ltd (ASX Settlement) under section 823B of the Corporations Act 2001 (the Act). These notices require ASX to produce a special report on specified matters in relation to the current CHESS. The detailed list of matters to be addressed in the special report are set out in the section 823B notices. The special report will be audited by Ernst & Young. We will take a practical approach to the publication of the findings of the special report and the audit report, taking into account any confidential commercial and security information, given that CHESS is critical national infrastructure.

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.

‘CHESS is critical financial market infrastructure for our country. 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.

Today the RBA, following a determination made by the Payments System Board, issued a letter of expectations to the boards of ASX Limited, ASX Clear and ASX Settlement in respect of the current CHESS and its replacement. This supplements the ASIC-RBA joint letter of expectations issued to the boards of ASX Limited, ASX Clear and ASX Settlement on 17 November 2022.

Reserve Bank Governor Philip Lowe said, ‘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. The RBA also expects to see further uplift by ASX with respect to its governance arrangements.’

The regulators will continue to consider the need for further regulatory responses to ASX’s recent decision and announcement to pause the CHESS Replacement program on 17 November 2022. The regulators are prepared to bring to bear a range of regulatory options to ensure that ASX Clear and ASX Settlement adhere to the regulators’ expectations and comply with their CS facility licence obligations.

The regulators’ coordinated action today demonstrates the shared immediate concern that current CHESS is supported and maintained to ensure its stability, resilience and longevity so that it can continue to service the market reliably. ASIC and RBA will continue to work closely together to monitor ASX’s compliance with its CS facility licence obligations, including the additional licence conditions imposed in November 2021, as well as ASX’s observance against the relevant Financial Stability Standards – and take action if required.

Background

ASIC and the RBA are co-regulators of licensed clearing and settlement (CS) facilities.

The RBA and ASIC have supervisory responsibilities for the four CS facilities in the ASX Group: two central counterparties – ASX Clear Pty Ltd and ASX Clear (Futures) Pty Ltd – and two securities settlement facilities – ASX Settlement Pty Ltd and Austraclear Limited.

The RBA conducts annual assessments covering the CS facilities’ observance of relevant Financial Stability Standards determined by the RBA. ASIC has separate, but complementary, responsibilities for the licensing and supervision of CS facilities licensed under Part 7.3 of the Act. ASIC is responsible for assessing whether a CS facility’s services are provided in a fair and effective way. ASIC also has regulatory responsibilities for operators of licensed markets, including the ASX market. In carrying out supervision and assessments of CS facilities, the RBA and ASIC work closely as appropriate.

Under section 823B(1) of the Act, the Minister may give a CS facility licensee a written notice requiring the licensee to give ASIC a special report on specified matters. This power has been delegated to ASIC.