Today, ASIC and the Reserve Bank of Australia (RBA) (the Regulators) acknowledged of a solution design to replace CHESS.
The product-based solution and vendor announced by ASX is a foundational step in getting the CHESS replacement program back on track.
This follows advice provided by the ASX Cash Equities Clearing and Settlement Advisory Group (Advisory Group), a small group of recognised industry leaders established to advise ASX Clear and ASX Settlement on strategic clearing and settlement issues led by independent chair Alan Cameron AO.
ASIC Chair Joe Longo said, ‘This is an important decision by ASX, but there is still a long way to go to deliver a CHESS replacement. It will be critical for ASX to now focus on engaging with the market on the detailed design of the CHESS Replacement program with a realistic and achievable timeline for implementation.’
The Advisory Group considered that a product-based solution, presented by ASX, and assessed by it, is an appropriate option to support a safe and timely replacement of CHESS. In addition, the Advisory Group responded with recommendations to ASX to provide clear statements on the industry impact, including the benefits to the market of the selected solution and ASX’s commitment to building a system that is interoperable. The Advisory Group also noted the importance of the competition in clearing and settlement legislation, and supporting ASIC rules to provide regulatory backing for interoperability.
‘I would like to thank Alan Cameron and the members of the Advisory Group for their work and advice. I look forward to the Advisory Group’s ongoing role in providing input throughout the CHESS replacement program, and on other strategic clearing and settlement issues,’ Mr Longo added.
RBA Governor Michele Bullock said, ‘Today’s announcement sets a new direction for the CHESS Replacement program. The Advisory Group, under Independent Chair Alan Cameron, has played an important role in bringing the interests of the market as a whole into today’s decision.
‘The Advisory Group’s input will remain critical throughout the implementation phase of the replacement solution. It will also be critical for ASX to address the findings from various external audits and reviews so that past issues with the program are not repeated.’
In the coming weeks, the Regulators expect ASX to publish its special report covering the ASX Licensees’ current portfolio, program and project management frameworks, and an assessment of those frameworks against internationally recognised standards. In addition, ASX will publish the external audit of this report undertaken by Ernst & Young.
ASX will also need to ensure existing CHESS continues to be maintained to meet ongoing resilience, reliability, integrity, and security requirements. This will be a continued focus for ASIC and the RBA.
The replacement of CHESS is a complex and technical program of work. It is critically important that robust and transparent governance arrangements are put in place by ASX to manage the risks associated with such an implementation.
Background
ASIC and the RBA are co-regulators of licensed clearing and settlement (CS) facilities.
The RBA and ASIC have separate but complementary 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 has determined standards for the purposes of ensuring that CS facility licensees conduct their affairs in a way that promotes the overall stability of the Australian financial system. The RBA conducts annual assessments of how well the ASX CS facilities are complying with their statutory obligations to comply with those standards and to do all other things necessary to reduce systemic risk.
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.
