Speaking at the parliamentary joint committee on corporations and financial services, Australian Securities and Investments Commissions (ASIC) chair Joe Longo said that its current regulatory approach to the ASX CHESS replacement involves “more intense proactive supervision”.
“In February, we issued additional notices to the ASX licensees requiring two special reports. One is about ASX’s response to the findings and recommendations of Accenture’s external review on the delivery of the CHESS replacement application software, and the other is a holistic assessment of ASX’s portfolio, program, and project management framework,” Mr Longo said.
“These special reports will also be audited by Ernst & Young. ASX is expected to provide the special report on Accenture’s recommendations by the end of this month, and the associated audit report by the end of July.
“ASX’s special report on the ASX Group’s portfolio, program, and project management frameworks and the associated audit report, are due at end of September and October 2023, respectively.”
Earlier in June, ASX released the first special report prepared for ASIC, which detailed ASX’s arrangements for the support and maintenance of CHESS to ensure it remains operationally reliable until a replacement solution is implemented.
At the time, ASX managing director and chief executive, Helen Lofthouse, said: “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.”
Mr Longo said the additional 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, in particular, ASX Clear and ASX Settlement, adhere to the regulators’ expectations and comply with their CS facility licence obligations,” he said.
“We are looking for assurance that any gaps or deficiencies are addressed before ASX pushes forward on the new CHESS replacement solution and any other future program ASX undertakes. We want to make sure ASX’s program management framework is able to successfully deliver programs of change and upgrades to Australia’s market infrastructure.”
Mr Longo also responded to calls for a steering committee to oversee the CHESS replacement program.
“While we consider some additional oversight through an advisory body may be useful in the circumstances, the efficacy, composition, and function of such a body would need to be carefully considered,” he said.
“Given the importance of the replacement of CHESS to Australia’s financial system, it will be important to ensure any additional governance mechanism is clear about its remit and function and that it doesn’t interfere with the decision making and accountability of ASX over the project.
“Furthermore, to be an effective advisory mechanism, the composition of the body needs to effectively represent the views of the diverse range of stakeholders while not being too cumbersome in size.”
Additionally, Mr Longo welcomed the introduction into Parliament of legislation on competition in clearing and settlement and the progress of the financial market infrastructure reforms.
“These reforms will strengthen our supervisory powers, including information-gathering powers,” he said.
“They will broaden the range of enforcement tools we, the RBA and the ACCC have available. If enacted, ASIC will work with government and the Council of Financial Regulators to implement both reforms.”
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.
ASIC and 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 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.