Blockchain failure puts ASX in check with ASIC

Company News

by Glenn Dyer

Corporate regulator ASIC is investigating sharemarket operator ASX Ltd for potential breaches of continuous disclosure, business judgement and misleading, false and deceptive conduct over its handling of the failed CHESS blockchain replacement project.

The ASX confirmed the probe in a short statement to the stock exchange on Wednesday.

“ASIC has confirmed to ASX that it has commenced an investigation into suspected contraventions of the ASIC Act 2001 and the Corporations Act 2001 in relation to the CHESS replacement program.

“ASIC will be investigating whether ASX Limited, ASX Clear Pty Limited, ASX Settlement Pty Limited and/or their directors and officers have breached obligations under sections 180, 674, 674A, 1041H and 1308 of the Corporations Act 2001 and sections 12DA and 12DB of the ASIC Act 2001, during the period 28 October 2020 to 28 March 2022, in relation to oversight of the program, and statements and disclosures made by or on behalf of ASX as to the status of the program.

ASX said it will cooperate fully.

The investigation stems from ASX’s ditching of the blockchain-based replacement of its core CHESS market system in November of last year.

The replacement program has been running over time and budget for several years and last November, ASX ended it blaming project management, technical, and scalability issues.

While the ASX still intends to replace the system, it has gone back to the start, this time with the Reserve Bank and other regulators monitoring the situation closely.

The legal action comes just over a month after ASIC took action “to ensure ASX adequately responds to the findings and recommendations of the ASX CHESS Replacement Application Delivery Review by consultants Accenture and that all necessary steps are undertaken by ASX to uplift identified gaps and deficiencies in relation to ASX Group’s portfolio, program and project management frameworks.”

ASIC said it had issued notices to ASX Ltd, ASX Clear Pty Ltd and ASX Settlements Pty Ltd which require ‘the licensees to produce two special reports covering “1) how the ASX Licensees will respond to the findings and recommendations of the External Review; and 2) the ASX Licensees’ current portfolio, program and project management frameworks and an assessment of those frameworks against internationally recognised standards.”

These reports were to have been externally audited by Ernest & Young. The first review was to be given to the ASIC by June 30 this year and the special report a month later.

ASIC chair Joe Longo said in the February 22 release, “We consider the External Review Special Report will provide necessary assurance for ASIC and industry that ASX is taking all possible steps to respond to the findings and recommendations outlined in the External Review.

“More broadly an assessment of ASX’s portfolio, program and project management frameworks against internationally recognised frameworks will demonstrate which components are fit-for-purpose and the measures to be adopted to address identified gaps and deficiencies.

“These reports will help build confidence in ASX’s ability to deliver the CHESS Replacement and any other programs ASX undertakes.”

Since February 22 something has happened, been reported or discovered that has short-circuited this process and seen ASIC move to an investigatory mindset.

What that might be is not known.

ASX shares closed at $64.80, up 0.3%.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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