The blockchain-backed upgrade in the works for nearly five years has potentially cost Australia’s primary exchange over $170 million.
The long-anticipated plans by the Australian Securities Exchange (ASX) to use blockchain to bring its clearing and settlements system into the 21st century have just been canceled.
In a Nov. 17 statement, ASX announced it had paused all current activities of its “CHESS replacement project” following an independent review from technology consulting firm Accenture, which identified “significant challenges with the solution design and its ability to meet ASX’s requirements,” stating:
“Current activities on the project have been paused while ASX revisits the solution design.”
For the last five years, ASX had been working on a Distributed Ledger Technology (DLT) solution that would replace its 25-year-old Clearing House Electronic Subregister System (CHESS) used to record shareholdings and manage transaction settlements.
Originally the system was slated for a 2020 launch, but the project was marred by multiple delays over the years with the ASX saying it needed more time for testing, had uncertainty around COVID-19, needed more time for development, capacity overhauls, and even more testing before it went live.
Amongst findings in its 47-page report, Accenture said that business workflows are “not tailored for a distributed environment”, the DLT-based system was too complex, and the completion timeline was uncertain regardless of the application software being over 60% complete.
ASX chairman Damian Roche apologized for the disruption, adding “there are significant technology, governance, and delivery challenges that must be addressed.”
Helen Lofthouse, ASX Managing Director and CEO said “it’s clear we need to revisit the solution design” adding “we have some work to do before updating and consulting with stakeholders more deeply.”
Thee announcement has drawn criticism from the Australian Securities Investment Commission (ASIC) and the Reserve Bank of Australia (RBA) — respectively the country’s financial market regulator and central bank — which released a joint statement on the matter.
RBA Governor Philip Lowe called the ASX announcement “very disappointing” and ASIC chair Joe Longo said the ASX “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 two organizations highlighted their expectations saying the CHESS replacement must be live before the current system no longer meets requirements and that “market and service continuity be secured” by the current system.
The ASX must also “uplift its capabilities” and address “the serious deficiencies identified by the independent report” starting by creating a plan to address them.
The ASX said the project had racked up a pre-tax charge of between $164.6 million and $171.3 million ($245 to 255 million Australian dollars).