The Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) (the regulators) have taken further steps to address their increasing concern over the management of operational risk at ASX, following the CHESS batch settlement failure incident that occurred on 20 December 2024.

In a joint letter to ASX, the regulators expressed 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.

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.

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.

RBA Governor Michele Bullock said, ‘It is deeply disappointing that the regulators need to take these actions today. But they are necessary. 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, and the recent CHESS incident has underscored those concerns. The underlying issues that we have raised need to be addressed as a matter of priority to strengthen the resilience of the CHESS system.’

ASIC Chair Joe Longo said, ‘Our actions underscore our increasingly deep concerns with ASX’s management of the CHESS system, and we will continue to consider further action. The technical review of ASX’s core technology infrastructure is necessary given the ongoing concerns the regulators have raised about ASX’s operational resilience. It is troubling that these risks were realised in this major incident.’

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.

Download

• Joint letter to ASX
• ASIC’s notice to ASX
• Letter accompanying ASIC’s notice to ASX

Background

The RBA and ASIC are co-regulators of licensed CS facilities and have separate, but complementary, responsibilities for the licensing and supervision of CS facilities licensees.

These responsibilities include supervising each CS facility licensee’s compliance with the obligation to do all things necessary to ensure that the facility’s services are provided in a fair and effective way, to the extent it is reasonably practicable to do so. In carrying out supervision and assessment of CS facilities, the RBA and ASIC work closely as appropriate.

The RBA supervises CS facilities from the perspective of the facilities’ importance to the stability of Australia’s financial system. This includes the power to determine financial stability standards for the purpose of ensuring that CS facility licensees conduct their affairs in a way that causes or promotes overall stability in the Australian financial system.

ASIC’s regulatory action announced today are in addition and separate to ASIC’s investigation into ASX Settlement Pty Ltd (ASX Settlement) for suspected contraventions of section 821A of the Corporations Act.

Source: ASX

ASX Responds To Actions From Reserve Bank Of Australia And ASIC Following Chess Settlement Incident

ASX confirms it has received a joint letter from the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) outlining regulatory action following the CHESS batch settlement incident on 20 December 2024. The settlement incident arose from an issue relating to the current CHESS system’s memory allocation logic that meant ASX was not able to complete batch settlement for the cash equities market on that day. A process was then undertaken to cancel batch settlement and reschedule it to the next business day.

The joint letter notes that the RBA has conducted an out-of-cycle assessment of ASX Clear Pty Limited (ASX Clear) and ASX Settlement Pty Limited (ASX Settlement) against its Financial Stability Standard for Operational Risk. The RBA has revised its rating for the Operational Risk standard to “not observed.” It has made recommendations for ASX to outline and communicate publicly how we plan to strengthen resourcing and third-party support arrangements for CHESS, and to outline options for implementing contingency arrangements for CHESS. The letter has been published here.

ASX has also received a notice from ASIC directing ASX Clear and ASX Settlement to appoint an expert to conduct a technical review of CHESS and provide a report to ASIC within 150 days of appointing the expert, or a longer period as may be agreed with ASIC. The review will cover several specific matters including the technical architecture of CHESS and the quality and health of the code. A version of the report will be made public.

These actions are in addition to the ASIC investigation into the incident which is ongoing.

ASX Chairman David Clarke said: “There is no question that the settlement incident was very serious. The Directors of ASX and the Clearing and Settlement Boards are highly engaged on this matter; we understand how disappointing it was and we are absolutely committed to rebuilding confidence in ASX.

“ASX has been executing an action plan in response to the incident to minimise the risk and impact of potential future incidents and enhance overall system resilience, but more needs to be done and we must act with greater urgency. Management has commenced work to establish a new enterprise-wide program that goes beyond immediate actions to respond to the settlement incident and this will comprehensively address the regulatory concerns and expectations. This is a CEO-sponsored, business critical initiative with its success a strategic priority of the Board.”

ASX is in the second year of its five year strategy under ASX Managing Director and CEO Helen Lofthouse where significant focus and investment has been placed into a technology modernisation strategy which includes maintaining current CHESS as well as the project to replace CHESS. ASX’s capital expenditure profile has increased significantly and is primarily driven by our technology modernisation roadmap.

Ms Lofthouse said: “We’ve been investing heavily in modernising our systems and our project to replace CHESS is well underway. The delivery of the clearing services component is planned for between March and April next year and the first stage of industry testing commenced at the end of last month. The new CHESS system is being built on modern, modular architecture and is benefitting from extensive stakeholder consultation to ensure it will meet the needs of the market as a whole.

“Meanwhile we continue to invest in current CHESS, and while the settlement incident was unprecedented we need to draw lessons from it and ask ourselves how we could do better.”

ASX published an Incident Review on 23 January 2025 which detailed our action plan following the incident. A key part of our plan was to conduct a Post Incident Review (PIR) process to help strengthen our response to potential future incidents and enhance overall system resilience. The first phase of the PIR assessed ASX’s processes and protocols for incident management while the second phase takes feedback from external stakeholders about our communication processes and the impact of the incident. We will action the findings from the first phase of the review which include uplifting incident and crisis management frameworks, enhancing existing scenario playbooks, and conducting further fire drill exercises.

Ms Lofthouse said: “Taking action to increase confidence in the reliable operation of CHESS is an ongoing priority for ASX. We will now engage with ASIC on the selection of an appropriately qualified external expert to review the work we have already undertaken and advise on what more we can do.

“The settlement incident heightens the urgency and focus on our work to improve the fundamentals of our business. We recognise we have to do more to lift capabilities in key areas such as risk management and business resilience. The new program we are establishing will help us look more closely at what activities need to be reprioritised, expanded or accelerated, and these actions ultimately contribute to us being a stronger exchange.

“As an operator of critical market infrastructure that underpins the Australian financial system, our people understand that what we do matters, and I know everyone seeks to bring their best each day. This means we have a special responsibility and we are focused on restoring the community’s confidence in us.”

Source: ASX