In a joint letter, signed by RBA governor Michele Bullock and ASIC chair Joe Longo, both regulators emphasised the need for immediate remediation, citing ASX’s failure to meet its public commitments to ensure the reliability of the CHESS system, which underpins Australia’s equities market.
The letter follows the CHESS batch settlement failure incident which took place in December and gave rise to concerns about the potential for future failures of the CHESS system, the handling and communication during such incidents, and the pace of ASX’s remediation actions.
“For some time, the regulators have been raising serious concerns about operational risk at the ASX clearing and settlement facilities. These risks were realised in this major operational incident,” the letter reads.
In response to the incident, the letter reveals that in an unprecedented move, the RBA has reassessed ASX Clear Pty Limited and ASX Settlement’s compliance with its Financial Stability Standards, downgrading their status from “partly observed” to “not observed”.
“This indicates that the RBA has identified serious issues of concern that warrant immediate action,” the letter by Bullock and Longo reads.
In addition, ASIC has directed ASX to commission a technical review of CHESS by an approved expert, with findings to be made public to enhance market confidence.
“This review and any remediation will provide greater confidence to regulators, and the public, in the stability and operational resilience of the current CHESS platform,” the pair said.
“ASIC will expect a version of the report by this expert to be made public to provide confidence across the market and the economy of the operational resilience of ASX’s core technology infrastructure.”
The regulators made it clear that ASX must prioritise fixing the issues behind the December 2024 incident, warning that failure to act swiftly could lead to further regulatory action.
This, Bullock and Longo said, may include using new powers from the September 2024 reforms to modernise the regulatory framework for financial market infrastructures and additional rulemaking under the Competition in Clearing and Settlement reforms.
‘We must act with greater urgency’: ASX responds
On Monday, ASX confirmed it had received the letter, noting that the actions announced by the regulators are in addition to ASIC’s ongoing investigation into the CHESS incident.
ASX chairman David Clarke said there is “no question that the settlement incident was very serious”.
“The directors of ASX and the clearing and settlement boards are highly engaged on this matter; we understand how disappointing it was and we are absolutely committed to rebuilding confidence in ASX.”
While acknowledging that the company is executing an action plan in response to the incident, Clarke conceded that “more needs to be done and we must act with greater urgency”.
“Management has commenced work to establish a new enterprise-wide program that goes beyond immediate actions to respond to the settlement incident and this will comprehensively address the regulatory concerns and expectations. This is a CEO-sponsored, business-critical initiative with its success a strategic priority of the board.”
Now in its second year under managing director Helen Lofthouse, ASX’s five-year technology modernisation strategy, which includes both maintaining the current CHESS system and the project to replace it, has been a key area of focus.
The market operator in November said it expects the CHESS Release 2 implementation – targeted for 2029 – to cost between $270 million and $320 million.
It also continues to work towards the delivery of Release 1 for 2026, with estimated project costs currently expected to be at the “upper end” of ASX’s previous estimate of $105 million to $125 million.
Lofthouse said on Monday that ASX will now engage with ASIC on the selection of an external expert to review the work it has already undertaken and advise on what more it can do.
“The settlement incident heightens the urgency and focus on our work to improve the fundamentals of our business,” the managing director said.
“We recognise we have to do more to lift capabilities in key areas such as risk management and business resilience.
“As an operator of critical market infrastructure that underpins the Australian financial system, our people understand that what we do matters, and I know everyone seeks to bring their best each day. This means we have a special responsibility and we are focused on restoring the community’s confidence in us.”
