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ASIC to investigate ASX over possible Corps Act breaches in failed CHESS upgrade

The hits keep coming for the country's primary stock exchange, which is now under investigation by the corporate regulator for its oversight of the doomed upgrade to its clearing system.

The Australian Securities and Investments Commission has confirmed to the Australian Stock Exchange (ASX) that it will investigate suspected breaches of law in relation to its failed attempt to upgrade the CHESS clearing system.

The ASX’s Market Announcements Office posted a note Wednesday morning advising that ASIC will look into whether “ASX Limited, ASX Clear Pty Limited, ASX Settlement Pty Limited and/or their directors
and officers” breached several obligations of the Corporations Act and the ASIC Act in its efforts to embed blockchain technology into the ageing clearing platform.

The investigation will encompass the ASX’s “oversight of the program, and statements and disclosures made by or on behalf of ASX as to the status of the program”, during the period 28 October 2020 to 28 March 2022.

  • The ASIC announcement comes after chair Joe Longo last month hinted that the stock exchange was more interested in profit than the public interest in undertaking the upgrade project.

    “The ASX is a unique entity in the Australian economy: it is self-listed on its own exchange, it is a commercial entity that operates for profit for shareholders,” Longo said. “But it is also an entity that cannot look solely to its own interests in conducting its affairs.

    “It has certain privileges, frankly, in the way it has historically evolved and in the way our current regulatory arrangement operate,” he continued. “So it must, in my view, take into account the public interest in all of its decision-making. It cannot look to its own interest.”

    Registry company Computershare also took aim at the ASX at a federal parliamentary committee meeting in February, with CEO Marnie Reid questioning governance models at the exchange, and suggesting conflicts of interest may have driven the failed endeavour.

    Supportability, scalability and stability

    Things came to a head for the ASX’s CHESS project after 7 years of delays, when in November 2022 Accenture released a scathing independent report highlighting a lack of readiness, “complexity in the integrated solutions” and project governance issues.

    The ASX immediately halted the project, which was estimated to be only 63 per cent complete, and said it would “reassess” its ongoing plan. The software being deployed was eventually “derecognised at a gross cost of between $245 million and $255 million.

    Accenture said that complexity in the way the ASX requirements interact with the blockchain technology application made supportability, scalability and stability for the ASX’s primary functions “challenging”.

    Like Computershare, Accenture also highlighted governance issues at both the ASX and its delivery partners, including “inefficiencies in the delivery lifecycle through to testing, with siloed execution and reporting resulting in misaligned views of status on delivery progress, risks and issues”.

    The CHESS replacement project was put forward as a huge leap into a more integrated and efficient clearing and settlement system by the ASX when announced.

    “The replacement of CHESS… enables the industry to meet and respond to changing local and global markets, and promote further innovation through new levels of functionality, open standards and flexible technology,” the ASX had stated perviously.

    Now, with ASIC on its heels, the ASX will focus on assessing the damage.

    “ASX takes its obligations very seriously and will cooperate fully with ASIC,” the exchange stated.

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