Senate Inquiry Scrutinizes ASX's Second Attempt to Rebuild CHESS System

The Australian Securities Exchange (ASX) is facing increased examination from a Senate inquiry over its second attempt to rebuild the CHESS clearing and settlement system. The project, led by TATA Consultancy Services, has been deemed "too important to fail" by the parliamentary committee, which has criticized regulators for failing to anticipate potential problems with the system's replacement.

The Senate inquiry, chaired by Labor senator Deborah O'Neill, has expressed concerns about the ASX's ability to successfully deliver the project, citing the failures of the previous CHESS replacement effort. The committee's report calls for enhanced regulatory oversight and interoperability with potential competitors to ensure the system's reliability and resilience.

Why this matters: The CHESS system is a critical component of Australia's financial infrastructure, and its successful replacement is vital for maintaining the stability and integrity of the country's financial markets. The Senate inquiry's recommendations aim to address the risks associated with the project and ensure that regulators are better equipped to monitor and supervise the development of such critical technology platforms.

The inquiry has made several key recommendations, including empowering the Australian Securities and Investments Commission (ASIC) to make rules facilitating competition or fair provision of monopoly clearing and settlement services. It also suggests that the government should progress the Financial Market Infrastructure reforms as soon as practical and that ASIC and the Reserve Bank of Australia (RBA) should make interoperability a focus of their monitoring of the CHESS Replacement Project.

Furthermore, the committee has called for the Council of Financial Regulators to explore options for addressing the interoperability barrier to promote competition in clearing and settlement before the new CHESS system is available. The report also recommends that ASIC, the RBA, and Treasury should enhance their skills and processes for monitoring and supervising strategic technology risks in financial services and market infrastructure.

The inquiry found that the costs to industry participants in preparing for the new CHESS system have been substantial, and that the ASX, regulators, and government agencies should have better identified and monitored the strategic technical risks of the project. "ASIC and the RBA should have been more alert to the risk that the Australian Securities Exchange (ASX) might bungle the upgrade of its settlements system," the report stated.

As the ASX continues its work on the CHESS Replacement Project, the Senate inquiry's recommendations aim to ensure that the system is developed with the necessary safeguards and oversight to protect the interests of all stakeholders in Australia's financial markets. The inquiry's ongoing work to hold the ASX accountable underscores the critical importance of the project's success for the stability and integrity of the country's financial infrastructure.

Key Takeaways

• Senate inquiry criticizes ASX, ASIC, and RBA for failures in CHESS system replacement.
• Inquiry calls for enhanced regulatory oversight and interoperability to ensure system reliability.
• Recommendations aim to address risks and empower regulators to monitor critical technology projects.
• Costs to industry participants have been substantial due to ASX, regulators, and agencies' failures.
• Inquiry underscores the critical importance of CHESS system's success for Australia's financial stability.