ASX faces $20.5m penalty for failed blockchain-based system replacement

The Australian Securities Exchange (ASX) faces a $20.5 million penalty for misleading the market in 2022 on the progress of its then blockchain-based Clearing House Electronic Subregister System (CHESS) replacement.

The Australian Securities and Investments Commission (ASIC), which sued the bourse operator in 2024, is also seeking $3 million in legal costs.

The penalty and fees declaration is subject to approval by the Federal Court.

ASX said publicly that the replacement project for CHESS, a system that would use a permissioned distributed ledger developed by American company Digital Asset ,was "progressing well" on February 10, 2022.

However, behind-the-scenes, ASX knew the project was going badly and has admitted as much to ASIC.

The project was internally rated "red" due to significant unresolved issues and risks, and that the timelines for resolving them had already been pushed back.

There was no indication those gaps would close before go-live.

Industry testing sandboxes or test environments had been opened up, but they could not do everything the final CHESS system was scoped to do, and didn't run at the expected speed or capacity.

Other sandboxes were planned to open for industry testing, but with the same limited scope and performance, adding to the project's completion woes.

ASX ditched the blockchain-based system in November 2022, having worked on it for six years and spending between $245 million and $255 million.

ASIC chair Sarah Court said the ASX's statement risked undermining confidence in Australia's financial markets.

"Accurate and timely disclosures are fundamental to maintaining trust in Australia’s financial markets, particularly from entities that operate core market infrastructure," Court said in a statement.

A new CHESS system based on Tata Consultancy Services' BaNCS platform went live at ASX in April this year, with future releases planned.