The ASX has been working with technology firm Digital Asset (DA) since early 2016 to develop a replacement for the Clearing House Electronic Registration System (CHESE) based on distributed ledger technology.
The project has been hit by various issues and numerous delays, and earlier this year Accenture was brought in to review its progress.
The independent audit found “significant challenges” to the project, several “deficiencies” in its approach and a “mismatch” between the ASX and Digital Asset.
On the back of this dire report, the ASX announced last week that it would be putting the entire project on hold, and the blockchain-based software project faced a pre-tax loss of between $245 million and $255 million.
“While ASX is keen to adopt technology that will benefit the market, it is clear that we need to revisit the solution design and validate and test the feedback from the independent review to assess the changes needed to bring the project to market safely, efficiently and effectively. Long-term,” ASX Managing Director and CEO Helen Lofthouse said.
ASX chairman Damian Roche apologized for the disruption to the project’s life.
“We embarked on this project with the latest information available at the time, determined to provide the Australian market with an aftermarket solution that balances innovation and state-of-the-art technology with safety and reliability,” Roche said.
“However, after further review, including the findings of the independent report, we have come to the conclusion that our current approach does not meet the ASX’s and the market’s high standards.
“There are challenges that need to be addressed in technology, governance and delivery.”
The current CHESS platform is safe and stable and the ASX will continue to invest in its capacity and strength, the exchange said in a statement to the market.
ASX will be able to use parts of the software capabilities built into future versions of CHESS, Lofthouse said.
CHESS provides clearing, settlement, asset registration and post-trade and issuance services and was introduced 25 years ago.
The process of replacing the legacy system. Launched in 2015, in late 2018 the ASX launched a CHESS replacement program to modernize and upgrade using distributed ledger technology.
The original plan was to launch a trial version of the replacement in March 2018, but this was quickly delayed by six months.
The launch date was revised to March/April 2021 and then to April 2023.
Accenture was approached in August to review the project and what was going on.
The report found a series of significant issues with the proposed settlement process, including significant delays, conferences, batch processing and technical deficiencies.
More than 60 per cent of the project has been in the works for four years but has been put on trial for the ASX. Of this work, most of the functional skills were, most of the non-functional skills have not yet been developed.
The Accenture report found “the inconsistency between expectations between the ASX and the DA has been compounded by deficiencies in performance and a lack of clear understanding of progress”.
“The performance and reporting between the ASX and the DA resulted in misperceptions, including the delivery process, risks and issues,” he said.
Both the ASX and DA have expressed misalignment and “disappointment” with current operating models, the report found, and this requires a “significant pivot”.
The draft delivery plan presented by the DA is rated as “high risk with low confidence,” the report said.
The ASX is regulated by ASIC and the Reserve Bank of Australia, and these organizations have criticized the technology project released jointly.
“The independent report found significant gaps and deficiencies in the ASX’s program delivery capabilities and significant challenges in technology design,” ASIC chairman Joe Longo said.
“It is generally unsatisfactory that these findings can be traced back to this late critical replacement program. The ASX has not yet demonstrated proper oversight of the program, which undermines the legitimate expectation that the ASX can provide a world-class current financial market infrastructure.”
Accenture’s report also found that the blockchain-based CHESS replacement failed to meet market standards and legal requirements, and business workflows were not designed for a “distributed environment.”