The corporate regulator is investigating whether the ASX’s failed attempt to implement a blockchain-based platform breached a number of laws.
The ASX confirmed on Wednesday that the Australian Securities and Investments Commission (ASIC) has launched an investigation into potential contraventions of the ASIC Act and the Corporations Act in relation to the bungled CHESS replacement program, which was paused late last year after $255 million and seven years in development.
The possible breaches include a lack of due care and diligence by ASX directors and officers, a failure to make continuous disclosures, misleading or deceptive conduct and making false or misleading representations.
The project in question began in 2015, when the ASX looked to replace its Clearing House Electronic Subregister System (CHESS), which was introduced nearly 30 years ago. The ASX eventually opted to modernise and upgrade this platform using distributed ledger technology in partnership with tech firm Digital Asset.
But the project was plagued by a range of issues and delays. In early 2022 Accenture was brought in to review the struggling project, with the audit finding “significant challenges”, a number of “deficiencies” in approaches and a “misalignment” between the ASX and Digital Asset.
“Siloed execution and reporting between ASX and Digital Asset have resulted in misaligned views of status including delivery progress, risks and issues,” the Accenture report said.
A draft delivery plan that had been put forward by Digital Asset was rated as being “high risk with low confidence”, the audit found.
The ASX ultimately scrapped the entire blockchain-based software project, with losses of up to $255 million, late last year.
On Wednesday it was confirmed that ASIC’s investigation centres on oversight of the program, and statements and disclosures made by or on behalf of the ASX as to the status of the program, between October 2020 and March 2022.
“ASX takes its obligations very seriously and will cooperate fully with ASIC,” the ASX statement said.
ASIC is looking into whether a number of breaches of the ASIC Act and Corporations Act have taken place.
These include section 180 of the Corporations Act, which relates to care and diligence, and requires directors and other officers to exercise their powers with a degree of care and diligence, and to make decisions in good faith.
The regulator will also be looking at whether section 1041H of the Corporations Act has been contravened, which requires a person to “not engage in conduct…that is misleading or deceptive or is likely to mislead or deceive”.
Section 12DB of the ASIC Act, which outlaws false or misleading representations, may also have been breached.
The ASX is overseen by ASIC and the Reserve Bank of Australia. Following revelations the CHESS replacement program had been scrapped, ASIC chairman Joe Longo expressed his disappointment.
“That these findings can be made at this late stage of a critical replacement program is altogether unsatisfactory,” Longo said.
“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.”
In January the ASX formed the CHESS Replacement Technical Committee, which met for the first time the following month. The organisation has also issued a request for information from vendors to investigate solution design options.
The ASX now plans to announce its new design solution in the December quarter of this year.
