The Australian Stock Exchange has pulled the pin on its much-vaunted blockchain project after seven years of work and at a loss of about $250 million.
The ASX has been working with tech firm Digital Asset (DA) to develop a replacement for its Clearing House Electronic Subregister System (CHESS) based on distributed ledger technology since the start of 2016.
The project has been hit with several issues and multiple delays, and earlier this year Accenture was brought in to review its progress.
The independent audit found “significant challenges” with the project, a number of “deficiencies” in its approach and a “misalignment” between the ASX and Digital Asset.
On the back of this scathing report, the ASX announced last week that it was pausing the entire project, and would be scrapping the blockchain-based software project, with losses of between $245 million and $255 million pre-tax.
“While ASX is keen to embrace technology that benefits the market, it’s clear we need to revisit the solution design as well as validate and test the feedback from the independent review to assess changes required to bring the project to market safely, efficiently and for the long-term,” ASX managing director and CEO Helen Lofthouse said.
ASX Chairman Damian Roche apologised for the disruptions experienced across the project’s life.
“We began this project with the latest information available at the time, determined to deliver the Australian market a post-trade solution that balanced innovation and state-of-the-art technology with safety and reliability,” Roche said.
“However, after further review, including consideration of the findings in the independent report, we have concluded that the path we were on will not meet ASX’s and the market’s high standards.
“There are significant technology, governance and delivery challenges that must be addressed.”
The current CHESS platform is secure and stable, and ASX will continue to invest in its capacity and resilience, the exchange said in a statement to the market.
ASX is also able to use parts of the software capability already built in future versions of the CHESS, Lofthouse said.
The CHESS provides clearing, settlement, asset registration and select post-trade and issuer services, and was introduced 25 years ago.
The process to replace the legacy system kicked off in 2015, and by the end of 2018 ASX had embarked on the CHESS Replacement Program to modernise and upgrade it using distributed ledger technology.
The original plan was to launch a test version of the replacement in March 2018, but this was quickly delayed by six months.
The launch date was then revised to March/April 2021, and then to April 2023.
Accenture was brought in in August to review the project and what was going on.
The report found a series of significant issues with the solution put forward, including around high latency, concurrency, batch processing and technical constraints.
Just over 60 percent of the project had been provided to ASX for testing, despite the work having been running for four years. Of this work, most of it was functional capabilities, with most of the non-functional capabilities yet to be built.
The Accenture report found “deficiencies in execution rigour and the lack of a clear understanding of progress, compounded by misalignment of expectations between ASX and DA”.
“Siloed execution and reporting between ASX and DA have resulted in misaligned views of status including delivery progress, risks and issues,” the report said.
Both ASX and DA expressed a misalignment and “frustration” over the current working models, the report found, and this would require a “significant pivot”.
A draft delivery plan put forward by DA was rated as being “high risk with low confidence”, the report found.
ASX is overseen by ASIC and the Reserve Bank of Australia, and these organisations slammed the tech project in a joint release.
“The independent report has found significant gaps and deficiencies in ASX’s program delivery capabilities and that there are significant challenges in the technology design,” ASIC chairman Joe Longo.
“That these findings can be made at this late stage of a critical replacement program is altogether unsatisfactory. ASX has failed to demonstrate appropriate control of the program to date, and this has undermined legitimate expectations that the ASX can deliver a world-class contemporary financial market infrastructure.”
The Accenture report also found that the blockchain-based CHESS replacement would likely be unable to reach market standards and legal requirements, and that the business workflows were “not tailored for a distributed environment”.