[SYDNEY] The Australian Securities Exchange must make “foundational changes” to its governance, culture and risk management after last year’s trading settlement failure, the country’s central bank said on Wednesday.
The Reserve Bank of Australia also warned ASX’s clearing and settlement units still fall short of key regulatory standards and pledged to monitor progress closely.
The central bank, which has oversight of the clearing and settlement systems, said in a statement following its investigation into the settlement failures it would consider further regulatory responses if ASX did not improve.
The RBA’s criticism underscores the growing regulatory pressure on ASX, by far Australia’s biggest equity market operator, to ensure the stability of essential financial systems.
“ASX is not currently meeting the regulators’ expectations for an operator of critical national infrastructure,” said RBA Assistant Governor (Financial System) Brad Jones.
“Resilient and secure clearing and settlement facilities are crucial to the stability of the Australian financial system.”
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ASX needed to improve its risk transformation plan and conduct a review of its business continuity and contingency arrangements in its clearing and settlement division, the RBA said.
ASX shares were trading down about 0.8 per cent when the RBA’s statement was published but fell further in the session to be off 1.26 per cent at 0358 GMT. The S&P/ASX200 was down about 1 per cent.
The ASX came under fire in December after deferring a day’s worth of trading settlements following a breakdown in its Clearing House Electronic Subregister System (CHESS).
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“We are acutely aware ASX must accelerate our progress to rebuild trust with our regulators, particularly following the disappointing incidents of the past year,” ASX Chief Executive Helen Lofthouse said in a statement.
Lofthouse added ASX is focused on contingency arrangements for CHESS and has completed some code fixes and memory increases to improve its resiliency.
In June, the Australian Securities and Investments Commission appointed an expert panel to investigate ASX’s governance and risk management practices that is due to deliver its findings by March.
The aging all-in-one CHESS system usually settles a trade two business days after a buyer and seller agree to the trade by arranging for money transfers.
Along with settlements, CHESS electronically registers the ownership of shares on its subregister.
ASX had been looking to replace the CHESS software using blockchain-based technology, but abandoned the overhaul in November 2022, six years after announcing it, citing concerns about the product’s complexity and scalability. REUTERS
