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This will include better defining executive responsibilities and more regular meetings between regulators and the non-ASX directors of the separate clearing and settlement boards. The law firms report requested by the RBA in December also called for additional corporate governance changes, especially around the formal documentation of meetings and decisions.

The report acknowledges ASX has made many important changes to managing conflicts of interest in the past couple of years, including responses to an RBA review on standards in 2021. The ASX said that the majority of the 13 recommendations will be made in next three months.

The ASXs critics argue that the company prioritised its future revenue sources by seeking to control market data generated by CHESS, instead of finding the most reliable clearing and settlement system for the broader market. This has led to calls for ASX to be stripped of its clearing and settlement functions and for these to be placed into a new utility.

At a parliamentary inquiry in February, ASIC chairman Joe Longo said the ASX may have gone astray by putting the interests of its shareholders over the national interest, while Computershare said the market operator had used the project to encroach onto services provided by share registries, and suggested it may have breached its obligations by mismanaging conflicts.

But overall, Herbert Smith Freehills said, in a report published on Friday, that having regard to the enhancements which have been put in place [mostly in 2022], the existing framework for conflict identification and management within the ASX group is sophisticated and consistent with the framework we would expect from a listed group of the complexity and scope of potential conflicting operations of the ASX group.

However, it added it had identified a number of recommendations as to further improvements which could be made to identify and manage the conflicts between the commercial interests of the ASX group and the general licence obligations of ASX Clear and ASX Settlement, in relation to current CHESS and CHESS replacement.

These include updating the conflict management policy to include guidance on intra-group conflicts, and for the document, and charter for the separate clearing and settlement boards.

It called for ASX to improve staff training, including bolstering the group conflicts curriculum more specifically and in more detail to focus on identifying and managing intra-group conflicts.

Subject to the RBAs and ASICs views, it also wants to increase the frequency of separate meetings between the non-ASX group directors sitting on the clearing and settlement entities boards to meet with the regulators to twice a year rather than once.

On Friday, ASX chairman Damian Roche said the report demonstrates that improvements weve made to governance are making a difference. We need to be transparent about the work were doing, and Im hopeful this report gives further confidence to our stakeholders that we have appropriate conflict management arrangements in place.

The RBA is expected to release a new statement whether the ASX is meeting financial stability standards that seek to ensure it conducts its clearing and settlement functions in a way that promotes overall stability in the financial system at the end of September. The ASX reports full-year profits on August 17, where the costs of regulatory pressure after the CHESS debacle will remain an issue for investors.

ASIC and the ASX have proposed to create a new advisory group on clearing and settlement to boost stakeholder engagement for the new CHESS replacement project. The first roundtable of the new group will take place next week.

See the article here:
ASX told to bolster policies to avoid conflicts of interest over CHESS - The Australian Financial Review