Following ASX’s announcement to pause the CHESS Replacement Program in November 2022, ASIC and the Reserve Bank of Australia (RBA) (the regulators) took action to ensure that all necessary steps are taken to support and maintain current CHESS until its replacement is successfully implemented.
On 15 December 2022 ASIC issued notices to ASX Clear Pty Ltd (ASX Clear) and ASX Settlement Pty Ltd (ASX Settlement) under section 823B of the Corporations Act 2001 (the Act), which required ASX to produce a special report on current CHESS and to have that reported audited by EY.
ASIC also issued a letter on this date that set out ASIC’s expectations, including requiring attestations from the Board of Directors that they reasonably believe that the information contained in the Special Report is accurate, and to provide a public version of the reports, which appropriately considers the confidentiality of certain commercial information and security (including cyber-security).
ASIC also took further regulatory action in February 2023 to ensure that ASX adequately responds to the findings and recommendations of the ASX CHESS Replacement Application Delivery Review by Accenture (the External Review) and takes all the necessary steps to address identified gaps and deficiencies in relation to the ASX Group’s portfolio, program and project management frameworks.
The audited special reports will 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’s investigation into ASX Limited, ASX Clear and ASX Settlement and their directors/officers in relation to the oversight of the CHESS Replacement Program and statements and disclosures on the status of the program between October 2020 and March 2022, is ongoing.
ASIC and the RBA are co-regulators of licensed clearing and settlement (CS) facilities.
The RBA and ASIC have 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 Reserve Bank has determined standards for the purposes of ensuring that CS facility licensees conduct their affairs in a way that promotes overall stability in 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.
Under section 823B(1) of the Act, the Minister may give a CS facility licensee a written notice requiring the licensee to give ASIC a special report on specified matters. This power has been delegated to ASIC.
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