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Wednesday 3 August 2022

22-204MR Delay to the ASX CHESS Replacement Project and Independent Review

ASIC and the Reserve Bank of Australia (RBA) (the regulators) acknowledge the recent announcement by ASX of the further delay to the Clearing House Electronic Sub-register System (CHESS) Replacement project. The regulators welcome the appointment of Accenture to provide an independent review of the new CHESS application software. This review is expected to assist ASX to confidently determine a new go-live date and will form part of ASX’s replanning process.

It is now time for a careful and independent review of ASX’s and Digital Asset’s (DA) work to date on the CHESS Replacement and the work needed to complete the project. It is critical that ASX and the market have a high degree of confidence and certainty in a new go-live date. Industry has mobilised significant resources to date and will need to continue to invest to ensure a successful and safe launch of the CHESS replacement.

Despite the delay, the regulators expect ASX to replace CHESS as soon as this can be safely achieved by ASX and users of CHESS. CHESS is a critical clearing and settlement (CS) system for the Australian cash equity market. A stable and reliable CHESS replacement will be important to maintain investor confidence in Australian financial markets and the stability of the financial system.

ASIC Chair Joseph Longo said, ‘It is very disappointing that there is a further delay to the CHESS Replacement Project. Given the delays and duration of the project, it is critical that Accenture now undertake this review to provide assurance on the delivery of a resilient replacement for CHESS and a high degree of confidence in a revised go-live date. To achieve this we expect ASX to publish the findings of the Accenture review. It is important that the Australian financial system is served well by contemporary infrastructure that is efficient, resilient, reliable and scalable to meet existing and future needs of the market and participants.’

RBA Governor Philip Lowe said, ‘The delay in the go-live date for the CHESS replacement system is disappointing. The review initiated by ASX is an important step in providing assurance that the new CHESS application software will be fit for purpose. The replacement system must be safe and reliable to maintain investor confidence and the stability of Australia’s financial system.’

The regulators continue to closely monitor ASX’s compliance with its CS facility licence obligations, including the additional licence conditions imposed in November 2021. These additional conditions required an independent expert to be appointed as approved by ASIC to assess whether ASX’s assurance program for the replacement of CHESS is fit for purpose, identifying any shortfalls, and reporting regularly to ASIC. The independent expert, EY, has and continues to provide assurances over various aspects of the CHESS Replacement project.

Accenture’s review will form part of ASX’s assurance program and therefore be considered by the independent expert. Prior to go-live, ASX must provide all independent assurances to the independent expert and the regulators and provide senior executive and Board attestations. The independent expert must also provide to ASIC a report on the totality of the findings of the assurance reviews including whether remedial actions have been appropriately implemented by ASX.

At a minimum, the regulators’ expectations are that the new system must meet requirements that CHESS meets today for system availability, resilience, recoverability, performance and security. ASIC and the RBA will continue to closely supervise ASX’s CHESS replacement change program.

We expect ASX to continue to invest in and maintain the current CHESS system so that it continues to service the market reliably until the CHESS replacement can go live.

Background

ASIC and the RBA are co-regulators of licensed CS facilities.

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

The RBA conducts annual assessments covering the CS facilities' observance of relevant Financial Stability Standards determined by the RBA.

For more information on the RBA's approach to supervising and assessing CS facilities, see: The Reserve Bank's Approach to Supervising and Assessing Clearing and Settlement Facility Licensees.

ASIC has separate, but complementary, responsibilities for the licensing and supervision of CS facilities licensed under Part 7.3 of the Corporations 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.

Last updated: 03/08/2022 09:41