Check against delivery
I am pleased to appear before the Committee today. I am joined today by Deputy Chairs Sarah Court and Karen Chester, Commissioner Danielle Press, Chief Operating Officer Warren Day and our General Counsel Chris Savundra. Also here today for questions relating to CHESS are Executive Director of Markets, Greg Yanco and Senior Executive Leader of Market Infrastructure Nathan Bourne.
We appreciate the Committee’s continuing interest in the CHESS replacement project, and I wanted to make a few opening remarks on this matter.
As you know we are continuing our supervisory and regulatory work on this matter with our regulatory colleagues at RBA. This matter has a long and complex history. Our supervisory approach to ASX and the CHESS Replacement program has changed over time to reflect the information we have available to us, including emerging risks and issues. Our current regulatory approach is characterised by more intense proactive supervision and the use of all available regulatory powers, including the imposition of licence conditions, and separately, the issue of notices for Special Reports that are audited. In addition, the RBA requested that ASX commission an external expert to prepare a report into the intragroup conflict management arrangements relating to CHESS and CHESS replacement.
In response to notices in December 2022, on 5 June the ASX released a Special Report and associated Audit Report by Ernst and Young on the state of current CHESS. This report is intended to provide transparency and confidence for industry and regulators on ASX’s arrangements for the support and maintenance of current CHESS to ensure it remains operationally reliable until a replacement solution is implemented. The special report confirms a support and maintenance plan for current CHESS. ASX has acknowledged recommendations from Ernst and Young relating to risk and monitoring practices, business continuity measures and the development of an assurance program over the CHESS roadmap. We are continuing to consider the Special Report in light of the Audit Report and ASX’s response.
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. 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.
These additional 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 in particular, ASX Clear and ASX Settlement, adhere to the regulators’ expectations and comply with their CS facility licence obligations.
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.
On 28 March, we notified ASX of the commencement of an investigation into suspected contraventions of the ASIC Act 2001 and the Corporations Act 2001 in relation to the CHESS replacement program. ASIC is investigating whether there were any breaches by ASX companies or their directors or officers in relation to oversight of the program, and statements and disclosures made as to the status of the program.
ASIC’s investigation is ongoing and there may be limits to what we are able to share so as not to prejudice our investigation.
We have considered the written submissions and listened to evidence provided to this Committee on the criticisms of ASX’s governance in relation to the CHESS replacement project. In particular, we acknowledge calls for the establishment of a steering committee and we are giving this further consideration. 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. 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. The establishment of such a properly constituted body will necessarily take time and has a risk of affecting the timeframe for the CHESS replacement further. Ultimately, all parties - including ASX - will need to be committed to genuine collaboration and consultation, and to the success of this advisory body.
We welcome the introduction into Parliament of legislation on Competition in Clearing and Settlement (CiCS) and the progress of the Financial Market Infrastructure (FMI) reforms. These reforms will strengthen our supervisory powers, including information-gathering powers. 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.
We welcome any questions the Committee may have.