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How Regulators Allowed ASX's Technology Failure

How Regulators Allowed ASX's Technology Failure

by Starling Insights

Starling Insights Editorial Board

May 01, 2024


The Australian Parliamentary Inquiry into the Australian Stock Exchange's (ASX) long-delayed and over-budget replacement of its settlements system has issued its final report. The Inquiry uncovered systemic failures in oversight and accountability by the Australian Securities & Investments Commission (ASIC) and the Reserve Bank of Australia (RBA). 

The report comes 17 months after ASX's long-planned replacement of its aging Clearing House Electronic Sub-register System (CHESS) with a novel blockchain-based system failed, resulting in a $250 million write-down. The report, which provided 12 recommendations, stressed the need for more rigorous audits and supervision to prevent such technical failures in the future. "We must ensure that key parties have learned from the failures of the CHESS replacement project thus far, and do everything possible to avoid them happening again," said Senator Deborah O'Neill, who Chairs the Parliamentary Joint Committee on Corporations and Financial Services that conducted the Inquiry.

The report criticized the effectiveness of the co-supervisory model, whereby ASIC and RBA both supervise the ASX's operations. It argued that the ASX and its regulators must enhance the technology expertise within their leadership and reduce their reliance on outsourcing to contractors and consultants to ensure they can monitor such strategic technical risks more effectively in the future.

The Committee also called upon the government to strengthen regulatory powers and enforcement powers over the ASX to ensure accountability. The Council of Financial Regulators, a coordinating body of the country's regulators, should also audit all critical technology platforms for which the government has regulatory responsibility to provide "early alerts and responses to strategic technology risks and other problems," the report argued.

According to Senator O'Neill, the Committee's efforts to ensure ASX and its regulators are held accountable will be ongoing. "The CHESS replacement project is too important to fail," she said.

Earlier this year, Starling Insights published a Deeper Dive report entitled "Physician, Heal Thyself," which discusses global efforts to hold regulators accountable for their organizational culture and the outcomes such culture may drive. Regulators, that is, are increasingly being held to a standard regarding culture and conduct that they have emphasized in recent years among the firms they oversee. ▸ Get the Report

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