RBA and ASIC hit ASX on operational risk

The Reserve Bank of Australia (RBA) has taken the extraordinary step of deeming the Australian Securities Exchange (ASX) to have failed in meeting its operational risk obligations.

The RBA and the Australian Securities and Investments Commission (ASIC) have jointly written to the ASX expressing their deep concerns about the potential for operational incidents such as the CHESS batch settlement failure, to affect the ability of the CHESS system to reliably service the Australian equities market until CHESS is replaced.

The regulators also highlighted their concern about the speed and nature of ASX’s remediation actions following the initial incident.

The announcement said that, in response, the RBA has taken the unprecedented step of reassessing the compliance of ASX Clear Pty Limited and ASX Settlement Pty Ltd with the RBA’s Financial Stability Standards outside the usual annual assessment cycle.

“The RBA has downgraded its assessment of these entities’ compliance with the “Operational Risk” standard from partly observed to not observed. A rating of not observed is made when the RBA has identified serious issues of concern that warrant immediate action,” it said.

In addition, ASIC has directed ASX, under section 823BB(4) of the Corporations Act 2001, to engage an expert approved by ASIC to undertake a technical review of CHESS. This review and any remediation will provide greater confidence to regulators, and the public, in the stability and operational resilience of the current CHESS platform.

The regulators together outlined their expectations that ASX needs to give the highest priority to the immediate remediation of issues that caused and exacerbated the December 2024 incident.

“If not urgently addressed, the regulators are prepared to take further regulatory action. This could include the use of the regulators’ new powers under reforms to modernise the regulatory framework for Financial Market Infrastructures, which came into effect in September 2024, and further rulemaking under the Competition in Clearing and Settlement reforms.”