The ASX has partnered with technology company Digital Asset (DA) to develop a replacement for its Clearing House Electronic Subregister System (CHESS) based on distributed ledger technology since early 2016.
The project has been hit by several issues and multiple delays, and Accenture was brought in earlier this year to review progress.
The independent control found “significant challenges” with the project, a number of “shortcomings” in the approach, and a “misalignment” between the ASX and Digital Asset.
On the back of this damning report, the ASX announced last week that it would pause the entire project and scrap the blockchain-based software project, with losses of between $245 million and $255 million pre-tax.
“While ASX wants to embrace technology that benefits the market, it is clear that we need to review the design of the solution and validate and test the feedback from the independent review to assess the changes needed to make the project safe, efficient and to bring it to market. long term,” said ASX President and CEO Helen Lofthouse.
ASX President Damian Roche apologized for the disruptions experienced over the life of the project.
“We began this project with the most up-to-date information available at the time, determined to provide the Australian market with a post-trade solution that balanced innovation and advanced technology with safety and reliability,” said Roche.
“However, after further investigation, including consideration of the findings in the independent report, we have come to the conclusion that the path we are on will not meet the high standards set by ASX and the market.
“There are significant technology, governance and delivery challenges that need to be addressed.”
The current CHESS platform is secure and stable and ASX will continue to invest in its capacity and resilience, the exchange said in a statement to the market.
ASX can also use parts of the software capabilities already built into future versions of the CHESS, Lofthouse said.
The CHESS provides clearing, settlement, asset registration and selected post-trade and issuer services, and was introduced 25 years ago.
The process to replace the old system started in 2015 and by the end of 2018, ASX had started the CHESS replacement program to modernize and upgrade it using distributed ledger technology.
The original plan was to launch a test version of the replacement in March 2018, but we succeeded soon delayed by six months.
The launch date was subsequently revised to March/April 2021 and then to April 2023.
Accenture was brought in in August to review the project and its progress.
The report found a series of key issues with the proposed solution, including high latency, concurrency, batch processing, and technical limitations.
Just over 60 percent of the project had been given to ASX for testing, despite the work having been underway for four years. Most of this work consisted of functional capabilities, while most of the non-functional capabilities had yet to be built.
The Accenture report found “deficiencies in the rigor of execution and the lack of a clear understanding of progress exacerbated by a misalignment of expectations between ASX and DA”.
“Silo execution and reporting between ASX and DA has resulted in misaligned views of status, including delivery progress, risks and issues,” the report said.
Both ASX and DA expressed misalignment and “frustration” with current working models, the report found, and this would require “significant pivoting.”
A draft delivery plan put forward by DA was rated as “high risk with low confidence,” the report said.
ASX is overseen by ASIC and the Reserve Bank of Australia, and these organizations have criticized the technology project in a joint release.
“The independent report found significant gaps and shortcomings in ASX’s program delivery capabilities and significant challenges in the technology design,” said ASIC President Joe Longo.
“That these findings can be made at this late stage in a critical replacement program is absolutely unsatisfactory. ASX has so far failed to demonstrate proper control over the program, and this has undermined legitimate expectations that ASX can deliver a modern, world-class financial market infrastructure.”
The Accenture report also found that the blockchain-based CHESS replacement was unlikely to meet market standards and regulatory requirements, and that its business workflows were “not tailored for a distributed environment.”