ASIC has called for the Australian Securities Exchange (ASX) to provide additional proof that it is meeting the recommendations of a recent external review into the failings of the CHESS Replacement Project, providing confirmation that the securities exchange has taken the required steps to “uplift identified gaps and deficiencies” in the program.
The regulator, which alongside the Reserve Bank of Australia (RBA) oversees the ASX’s clearing and settlement (CS) facilities, has requested the production of two separate documents from the ASX outlining the steps it has taken to “uplift identified gaps and deficiencies in… [the CHESS replacement’s] portfolio, program and project management frameworks”.
ASIC chair Joe Longo said the requested reports, which are expected to be released publicly by the middle of this year, would assist the watchdog in determining whether any further regulatory action is required.
The two special reports will cover:
- how ASX Licensees will respond to the findings and recommendations of the External Review (the External Review Special Report); and
- ASX Licensees’ current portfolio, program and project management (PPPM) frameworks and an assessment of those frameworks against internationally recognised standards.
Ernst & Young has been appointed to audit the two reports.
The ASX pitched the CHESS Replacement Project as a major overhaul of its now 25-year-old clearing and settlements, asset registration and select post-trade and issuer services system, promising improvements in overall availability, reliability and performance over the current system.
First proposed in 2015 and formally commenced at the end of 2018, the project – which looked to leverage distributed ledger technology (or ‘blockchain’) to serve as the underlying platform – has been beset by multiple delivery delays.
The ASX was hit with a pre-tax project derecognition bill of $251.9 million following its decision to scrap the original project.
An independent audit of the CHESS Replacement Program by consultancy Accenture, released in November 2022, identified deficiencies in the proposed platform’s design, architecture, technical capabilities and governance processes, with the program now facing an up to two-year delay until a new, workable solution can be found.
Accenture proposed 45 recommendations to the ASX to revise its application delivery model, grouped across ‘ways of working’, ‘software delivery’, ‘quality engineering efficiency’, and ‘solution design’. The auditor was particularly critical of the project’s test management and quality management processes, considering them “inconsistently executed… and [requiring] significant uplift for the scale and nature of the program”.
Beyond an overall push to reduce complexity and simplify the platform’s architecture, Accenture advised project developers to revisit or refresh the underlying blockchain system, revise the platform’s use of Daml (a “smart contract” language), and restructure the NFR testing approach.
“We consider the External Review Special Report will provide necessary assurance for ASIC and industry that ASX is taking all possible steps to respond to the findings and recommendations outlined in the External Review,” Longo said.
“More broadly an assessment of ASX’s portfolio, program and project management frameworks against internationally recognised frameworks will demonstrate which components are fit-for-purpose and the measures to be adopted to address identified gaps and deficiencies.”
Longo added: “These reports will help build confidence in ASX’s ability to deliver the CHESS Replacement and any other programs ASX undertakes.”
Late last year, the ASX was also requested to issue a special report on the current CHESS platform.