Australian financial regulators have taken unprecedented action against the country’s exchange ASX following a major operational failure in its critical CHESS settlement system, highlighting growing concerns about the exchange operator's risk management capabilities.

RBA and ASIC Downgrade ASX Over CHESS Settlement Failure

The Reserve Bank of Australia (RBA) has downgraded its assessment of ASX Clear and ASX Settlement's compliance with the "Operational Risk" standard from "partly observed" to "not observed" - the first time such a reassessment has occurred outside the regular annual cycle. This rating indicates serious issues requiring immediate action.

Simultaneously, the Australian Securities and Investments Commission (ASIC) has directed ASX to engage an independent expert to conduct a comprehensive technical review of the CHESS platform, which handles clearing and settlement for Australia's equities market.

"Our actions underscore our increasingly deep concerns with ASX's management of the CHESS system, and we will continue to consider further action. It is troubling that these risks were realised in this major incident,” said ASIC Chairman Joe Longo.

Regulatory Concerns Mount After December Failure

The regulatory actions follow a significant CHESS batch settlement failure on December 20, 2024, which disrupted Australia's equities market. Both regulators expressed "deep concerns" about ASX's management of operational risk and its response to the incident.

"It is deeply disappointing that the regulators need to take these actions today. But they are necessary," commented RBA Governor Michele Bullock. "ASX operates critical infrastructure that plays a central role in the financial system. ASX's management of operational risk has been a concern for RBA staff and the Payments System Board for some time."

Technical Review to Address Systemic Issues

The mandated technical review will examine multiple aspects of the CHESS system, including:

• Technical architecture and code quality
• Infrastructure reliability and scalability
• Staffing resources and capabilities
• Technical delivery practices and processes
• System observability and change management
• Third-party support arrangements

ASX must appoint an approved expert within 42 days, with an interim report due within 90 days of appointment and a final report 60 days later. A redacted version of the final report will be made public.

Potential for Further Regulatory Action

The regulators warned they are prepared to take additional steps if ASX fails to address the issues promptly, potentially using new powers granted under financial market infrastructure reforms enacted in September 2024.

The incident has raised questions about ASX's ability to maintain the current CHESS system reliably until its replacement is implemented. ASX had previously given a public undertaking to the RBA in December 2022 regarding the system's continued operation.