The Reserve Bank of Australia has pointed to key areas of concern regarding the Australian Securities Exchange’s (ASX) CS facilities in a new report.
Each year, the RBA undertakes an assessment of how these operations align with the central bank’s financial stability standards (FSS).
While the CS facilities were rated as having “observed” or “broadly observed” many of the individual standards, the central bank said that specific requirements related to governance, comprehensive management of risks, and operational risk were only “partly observed”.
“Consistent with these ratings, the bank’s assessment considers that the key areas of concern for ASX continue to be technology and cyber risks, and risk management,” it said this week.
Acknowledging the ASX’s work in addressing the recommendations set out last year – which included the need to improve the market operator’s governance arrangements and remediate technology risks – the RBA said that “significant further work” is required to meet the bank’s key areas of concern.
“It is critical that the multiple large-scale technology projects currently underway, including CHESS Replacement, are managed in a way that supports stability of the financial system,” it said.
“A detailed review of ASX’s operational risk management practices revealed that a fundamental uplift here is required.”
The bank also said it expects regulatory reporting to be delivered in a more timely, transparent and complete way, and added it would be “closely supervising” how the market regulator manages these priorities in the period ahead.
As such, it has issued several key recommendations for the ASX, including that it continue to place high priority on remediating ageing technology assets.
The RBA also proposed that the exchange reduce the complexity of vendor management frameworks and ensure that appropriate controls and processes are in place for all key vendors supporting the CS facilities, and called for a complete and independent review of the exchange’s internal strategy to address its heightened level of risk.
“We acknowledge the work that ASX has undertaken over the past year to address the bank’s previous recommendations, which has had to occur while ASX has undertaken significant technology modernisation projects including CHESS replacement,” Brad Jones, RBA assistant governor (financial system), said.
“However, the bank’s annual assessment has reinforced the importance of ASX strengthening its risk culture and overall framework for managing risk. This is a fundamental requirement for an entity that runs critical national financial infrastructure,” Jones said.
“There is more work to do here.”
The review comes after the Australian Securities and Investments Commission (ASIC) said it has commenced proceedings in the Federal Court against ASX for allegedly misleading statements related to its CHESS replacement project.
ASIC alleged in August that statements made in ASX announcements on 10 February 2022, that the project remained “on-track for go-live” in April 2023 and was “progressing well”, were misleading.
“ASX’s statements go to the heart of trust in the integrity of our markets. We believe this was a collective failure by the ASX board and senior executives at the time,” ASIC chair Joe Longo said at the time.
Earlier in August, the market regulator released a consultation which proposed that the CHESS replacement settlement and sub-register services be implemented by 2029 – breaking up the project across two main releases.
The delivery of the first release is expected to occur in the first half of 2026.
