Assessment of ASX Clearing and Settlement Facilities – October 2023
The Reserve Bank of Australia today released the 2023 Assessment of the ASX Clearing and Settlement Facilities. This assesses the performance of the ASX CS Facilities against the Banks Financial Stability Standards (FSS). The ASX CS facilities were rated as having “observed” or “broadly observed” most of the FSS. The Bank recognises there has been improved engagement and an increased commitment to transparency from the ASX. The Bank welcomes this development and considers it important that it continues.
However the Bank assessed that the CS facilities “partly observed” requirements under the FSS related to Governance, the Framework for the Comprehensive Management of Risks, and Operational Risk. The Bank has issued a number of recommendations in response, including that ASX should:
- redouble its efforts to ensure that key issues are raised with the ASX boards
- implement changes required to remediate the relationship between Internal Audit and the executive, while ensuring that Internal Audit remains an independent source of challenge
- facilitate effective stakeholder engagement, including by actively consulting stakeholders on the solution redesign, project, and implementation timeline for the CHESS replacement
- prioritise the implementation of short-term controls to mitigate the immediate risks of ageing assets. Related, ASX should promptly devise and implement a comprehensive roadmap to remediate its currently identified ageing assets, and develop and implement a robust long-term strategy to ensure that technology assets are proactively managed and renewed well before they approach obsolescence.
The Banks assessment includes a detailed review of the current CHESS for cash equities. While the review found that the current CHESS is broadly consistent with the FSS, high priority should be placed on the management of ageing assets supporting the current CHESS, capacity requirements and bottlenecks, management of resources and risk management.
The Bank also conducted a detailed review of ASXs management of Credit Risk, with several findings identified relating to the adequacy of ASXs stress testing framework.
RBA Assistant Governor (Financial System) Brad Jones said, The Bank welcomes the progress that has been initiated under the new ASX leadership, including increased engagement with regulators and stronger accountability for executives. However, it is important that ASX address recommendations related to board oversight, the effectiveness of the internal audit function, stakeholder management and the management of ageing assets. Given ASX operates critical financial market infrastructure, it is imperative that it continues to conduct its clearing and settlement operations in a way that promotes stability in the Australian financial system.
Background
The Reserve Bank is responsible for the supervision of Australian-licensed CS facilities with a focus on financial stability and the reduction of systemic risk. Systemically important CS facilities are assessed on a regular basis against the Financial Stability Standards (FSS) determined by the Bank.
The Bank conducts annual assessments of ASXs four CS facilities: two central counterparties – ASX Clear Pty Limited and ASX Clear (Futures) Pty Limited – and two securities settlement facilities – ASX Settlement Pty Limited and Austraclear Limited. These assessments include a rating of the CS facilities observance against each financial stability standard.
For more information on the Banks approach to assessing CS facilities, see: The Reserve Banks Approach to Supervising and Assessing Clearing and Settlement Facility Licensees.
ASIC has separate, but complementary, responsibilities for the supervision of CS facilities. In carrying out supervision of CS facilities, the RBA works closely with ASIC.