The Australian Securities and Investments Commission (ASIC) has initiated a lawsuit against the Australian Securities Exchange (ASX), the nation’s primary stock exchange, in Federal Court. The legal action stems from allegations that the ASX made deceptive statements concerning its failed attempt to overhaul its outdated systems using blockchain technology.
On August 14, ASIC publicly criticized the ASX for its prior communications stating that the project to replace the Clearing House Electronic Subregister System (CHESS) was “on track for go-live” by April 2023 and was “progressing well.” According to ASIC, these assertions were misleading as the project was reportedly off course during the time these statements were issued in early February 2022, and there was no substantial basis to claim readiness by the projected date.
ASIC Chair Joe Longo expressed his concerns: “We allege that the true state of affairs as at 10 February 2022 was that the project was not ‘progressing well,’ contrary to ASX’s announcement. We believe this was a collective failure by the ASX Board and senior executives at the time.”
The regulatory body has yet to decide on the penalties it will pursue against ASX.
In response to the allegations, ASX Managing Director and CEO Helen Lofthouse acknowledged the gravity of the situation, stating, “We recognize the significance and serious nature of these proceedings.” She further mentioned that ASX had cooperated fully with ASIC’s investigation and was currently reviewing the allegations in detail.
The CHESS Replacement Journey
ASX had initially embarked on replacing CHESS, the system responsible for managing the settlement of share transactions and recording shareholdings since the mid-1990s, in early 2016. By late 2017, ASX had opted for a system based on distributed ledger technology (DLT). However, after years of development, multiple delays, and significant financial investment—approximately $170 million (255 million Australian dollars)—the project encountered insurmountable challenges. A review by consulting firm Accenture in November 2022 highlighted severe issues with the solution’s design and its ability to fulfill ASX’s requirements, leading to the project being “paused” and eventually abandoned for more traditional technological solutions.
ASIC’s Joe Longo emphasized the importance of managing such critical projects with effective and transparent governance, noting that failures in this area could undermine confidence in Australia as a viable market for investments.
| Year | Event | Details |
|---|---|---|
| 2016 | Decision to replace CHESS | ASX plans to update its decades-old system using blockchain tech. |
| 2017 | Selection of DLT system | ASX settles on a blockchain-based system for CHESS replacement. |
| 2022 | Project paused and review conducted | Accenture’s review reveals significant design challenges. |
| 2023 | ASIC initiates legal action | Allegations of misleading statements about the project’s progress. |
The lawsuit against ASX by ASIC highlights the complexities and challenges associated with integrating advanced technologies like blockchain into critical financial infrastructures. This case not only underscores the need for transparency and accountability in corporate communications but also signals to other institutions the importance of prudent management and realistic reporting in high-stakes technological upgrades.
Featured image credit: Freepik
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