The Australian Securities Exchange (ASX: ASX) and its botched attempt to replace its settlements and clearing system (known as CHESS), with blockchain tech has finally faced reality and has abandoned its five year debacle, writing off millions of dollars of investment.
Eventually coming to their senses, last month the ASX board released a statement that the entire overhaul had to be reassessed following an independent review marshalled by business management company Accenture, along with its own internal review.
The report brought light to the fact that replacing the CHESS system is a large and very complex undertaking especially when considering the confusion that comes with understanding blockchain tech. Waving the white flag and surrendering to the limits of its own capabilities, the ASX left investors high and dry by announcing a roughly $250 million pre-tax write-off for the whole project. The Company has reassured investors their dividends will not be impacted.
The catastrophic failure prompted the departures of both the CEO and CFO in the same year and only a few months apart. Dominic Stevens, the former ASX CEO, announced his retirement in February 2022, with Helen Lofthouse taking over in August. Also coming to terms and moving on from the mess was the former CFO, Gillian Larkins, who also couldn’t commit herself to a seemingly doomed project and made her departure in July – this should’ve been the first sign that the project was already halfway in the grave.
Chairman of the ASX, Damian Roche commented that “after further review, including consideration of the findings in the independent report, we have concluded that the path we were on will not meet the ASX’s and the market’s high standards.”
Continuing the drama, in a joint statement released by the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC), concerns were expressed that the current clearing and settlement system isn’t a reliable, stable or resilient platform, and future upgrades need to be implemented for there to be any feasibility to the existence of this project.
ASIC and the RBA are taking a hard stance on the ASX, issuing notices demanding the production of a special report to address issues with their “critical national infrastructure” system, along with the RBA outlining expectations for further action going forward.
Chairman of ASIC, Joe Longo, along with the Reserve Bank Governor Philip Lowe, have both slammed the ASX and its governance over its failed program as it doesn’t even come close to the expectations of what’s supposed to be a world-class platform.
Ernst & Young has been chosen to conduct a special audit of ASX, tasked with determining how they can ensure the longevity and sustainability of their flagship settlement system known as CHESS until its permanent replacement is built. This was due in part to EY’s successful work overseeing licence conditions put into place last year.
The fumbled attempt by the ASX to replace CHESS with blockchain technology has been a complete waste of money, and an embarrassment for Australia’s financial system and highlighted many lessons, but at least some resolution is underway.
“Replacing CHESS is a large and complex undertaking…it’s clear we need to revisit the solution design,” said ASX Managing Director and CEO, Helen Lofthouse.
It remains unclear whether the organisation will ever receive its positive return on investment, as it appears that the people at the ASX have learnt their lesson – don’t bite off more than you can chew; especially when it comes to complex technological projects involving nascent blockchain tech. Ultimately leading to investors writing off this sloppy attempt as one of the greatest failures for an Australian company to innovate and pioneer a new technology to fruition.
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