Corporations and Financial Services Joint Committee - Statutory inquiry into ASIC Report

Wednesday, 15 May 2024

Mr HAWKE (Mitchell) (11:12): On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee's report Statutory inquiry into ASIC, the Takeovers Panel, and the corporations legislation: competition in clearing and settlement and the ASX CHESS replacement project: the CHESS replacement project is too important to fail.

Report made a parliamentary paper in accordance with standing order 39(e).

Mr HAWKE: I ask leave of the House to make a short statement in connection with the report.

The DEPUTY SPEAKER ( Dr Freelander ): Is leave granted?

Dr Aly: Leave is granted.

The DEPUTY SPEAKER: I call the member for Mitchell.

An incident having occurred in the gallery—

Mr HAWKE: Thank you, Deputy Speaker. I'll proceed, in spite of that noise.

The DEPUTY SPEAKER: Can Broadcasting please check what that noise is? Just pause for a second, Member for Mitchell. That's better. I call the member for Mitchell.

Mr HAWKE: As part of our statutory inquiry duties under the Australian Securities and Investments Commission Act 2001, the committee inquired into the regulation of financial market infrastructure and problems with the ASX Clearing House Electronic Subregister System, CHESS, replacement project. Indeed, the committee found many problems with the current replacement project transition as it is today. In our report, we've made several key recommendations—12, in fact—and they go to government, parliament, our agencies, the Treasury and ASIC, and they are well-considered recommendations about what should happen now about the CHESS replacement project.

In relation to the regulation of financial market infrastructure, the committee identified significant industry support for the government's competition in clearing and settlement and financial market infrastructure reforms. Hence, the committee has recommended that the government proceed with those reports in a timely way. The committee considered further clearing and settlement reforms proposed by industry participants including pricing and structural incentives, central counterparty interoperability and operational standards, regulator competition mandates and central counterparty default funds. The committee also explored other industry proposed reforms for ASX services including removing the staggered opening of the ASX equities trading, moving to T-plus-one settlement, access to electronic CHESS statements, regulations for titles and transfers, ASIC's role in approving the ASX's operating rules and fair access to ASX's Trade Acceptance Service.

This is where we turn to the problems and the pause in the redesign of the ASX CHESS replacement project. It was a significant focus of the committee's report—the problems in the replacement—and it is the considered view of all members of the committee, that, given the importance of the CHESS replacement project to the financial markets in Australia and the operation of our economy, that this pause and the problems that have happened with the redesign of the CHESS replacement project be a central focus moving forward from our committee's report and that our recommendations be taken most seriously in ensuring that this critical replacement project of CHESS be put back on track.

In our report, the parliament will find the cost to industry participants in preparing their systems for the new CHESS have been substantial. It's probably tens of millions of dollars in aggregate. ASX shareholders have suffered the impacts associated with the $250 million writedown by the ASX. Acting too late has magnified the costs of the regulatory cleanup by ASIC and the RBA—most serious findings, I'm sure most members here will agree. The CHESS replacement project is a critical component of Australia's financial market infrastructure, and therefore responsibility for it extends beyond the strict legal obligations of the ASX. In fact, if we don't get this right in the technological age that we live in, this will be, potentially, very damaging for the financial markets in Australia, and the committee's confident that we can get this right if these recommendations are considered. That's why the committee's report is entitled on the very front cover 'The CHESS Replacement Project is too important to fail'. It's a clear signal to all agencies involved in this project that we must now get this right.

The ASX, ASIC, the RBA and Treasury should have identified and monitored strategic technical risks, such as scalability, for the CHESS replacement project much more carefully in the committee's view. The committee considers that the ASX, ASIC, the RBA and Treasury should now enhance technological skills that are needed. This is a very complex area of financial markets and a very complex project, and those skills and experience at the most senior levels to oversight and ensure projects are on track must be available to these agencies of government. There must be less reliance, in the committee's view, on outsourcing responsibility to contractors and consultants given the centrality of the CHESS replacement project to the operation of Australia's financial markets.

Our committee has made recommendations—12 serious ones—to address all of these issues that I've raised today and improve the regulatory supervision of critical financial services technology platforms such as CHESS. For those members who aren't aware, this is a leap forward in technological reform for the clearance and settlement system in Australia. Other countries are doing it and have done it. We must do it and we must get it right.

I want to thank the committee chair, Senator O'Neill, for her collaborative and cooperative work. She is an exceptionally financially literate member of the government and someone who was a pleasure to work with on this critical issue. I also want to thank the secretariat; Sean Turner, the committee secretary, and, obviously, Jon Bell, who took over; Rachel Benzie, Julia Bowan and Morgan Jacobs for their exceptional work. The committee, I think it's fair to say, was not pleased to have to conduct this inquiry into this matter and find the failures that we uncovered. What is critical now is that these recommendations are taken most seriously by the Treasury, ASIC and the ASX—I know the government will take them seriously—and that we get the CHESS replacement right and back on track as quickly as possible.