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ASX releases CHESS audit reports

By Keith Ford
3 minute read

The ASX has released a special report relating to the clearing and settlement system for Australia’s securities market.

The securities exchange confirmed a program of work to maintain its clearing and settlement system, CHESS, as it continues to work on its replacement.

The report, which was prepared for the Australian Securities and Investments Commission (ASIC), details ASX’s arrangements for the support and maintenance of CHESS to ensure it remains operationally reliable until a replacement solution is implemented.

ASX managing director and chief executive, Helen Lofthouse, said: “CHESS was a globally leading system when it was first introduced and I’m pleased to note that it has continued to operate safely and efficiently since then, serving the Australian market well.

“ASX considers that its existing governance, investment, and management arrangements for CHESS are commensurate with its role in providing critical financial market infrastructure. Today’s report provides comprehensive information to demonstrate this.

“The report is also transparent about the risks, and how these are being managed or mitigated, including through an ongoing roadmap of maintenance and support.”

The report includes 27 initiatives related to capacity, availability, performance, and IT management as well as security and continuity, to ensure the ongoing operation of CHESS.

Audit and consulting firm EY conducted an independent audit, which ASX has also released. It found that:

• ASX has addressed the matters raised by ASIC in relation to the support and maintenance of CHESS.

• The work undertaken by ASX supports the outcomes documented in the special report.

• ASX has conducted sufficient governance arrangements for the production of the special report.

The EY audit report also made recommendations around risk management practices, processes, and the CHESS roadmap assurance program.

Ms Lofthouse continued: “We will continue investing in and enhancing CHESS to support the long-term interests of Australia’s financial markets, and to ensure we continue to meet applicable regulatory requirements.

“We are making good progress on the CHESS replacement solution design and our intention remains to announce the solution design by the final quarter of this calendar year. I would like to thank all of our stakeholders that are working alongside us to deliver the best long-term clearing and settlement solution for the Australian financial market.”

In a statement, ASIC said the audited special reports would assist ASIC in its assessment of whether any further regulatory action is required.

“ASIC is prepared to bring to bear a range of regulatory options to ensure that the ASX Group licensees and in particular, ASX Clear and ASX Settlement, adhere to the regulators’ expectations and comply with their CS facility licence obligations,” ASIC said.

The corporate regulator and the Reserve Bank of Australia (RBA) laid out their expectations of ASX last November in a joint letter of regulator expectations, in which they instructed the market operator to improve its program delivery capabilities and bring the CHESS replacement back on track, following multiple delays in the program.

The ASIC and the RBA then announced additional action in December with the aim of ensuring that all necessary steps are taken by ASX to support and maintain current CHESS until its replacement is successfully implemented.

In February, ASIC took further action to ensure that ASX adequately responds to the findings and recommendations of the November external ASX CHESS Replacement Application Delivery Review.

Following this, the regulator announced in March that it is investigating suspected contraventions of the ASIC Act 2001 and the Corporations Act 2001 in relation to ASX’s CHESS replacement program.