Regulators take aim as CHESS replacement, again, faces prolonged delays


The Australian Securities Exchange’s (ASX’s) CHESS replacement program faces an up to two-year delay, with an independent review finding deficiencies in the platform’s current design, architecture, technical capabilities and governance processes.

The latest delay marks the fifth official postponement to the CHESS replacement go-live date, with the earliest launch now expected no earlier than late 2024.

The review, commissioned by the ASX and commenced in September by Accenture, identified six core issues with the new system, with concerns over excess latency, an inability to support effective batch processing, and, as a result, limits to the platform’s scalability or “extensibility”.

The reviewer also identified concerns around the ASX’s, and its delivery partner Digital Asset’s (DA’s), governance processes and the management of vendors in the project.

“The report observes a number of inefficiencies in the delivery lifecycle through to testing, with siloed execution and reporting resulting in misaligned views of status on delivery progress, risks and issues,” the ASX wrote in response to the report.

In a bid to remedy the noted governance concerns, the ASX has announced the appointment of Tim Whiteley as Project Director to guide the next phase of the replacement project. Whiteley will report directly to ASX chief executive and managing director Helen Lofthouse.

Accenture noted that ASX and DA have accepted and jointly identified remediations to address the known core issues. These will serve as inputs to the current development of the Draft Delivery Plan provided by DA.

As a result of the findings, the ASX has moved to derecognise the CHESS replacement project as an asset, putting an up to $255 million hole in its spending budget. Lofthouse said the derecognition “reflects the uncertainty of the future value of the current solution design”.

Accenture made 45 recommendations to remedy the concerns, with varying levels of criticality, estimating the remediation process will take at least two years to complete before a project go-live can be considered.

The CHESS modernisation project, which kicked off in late 2018, replaces the ASX’s nearly three-decade-old clearing and settlements system with entirely new infrastructure based on Distributed Ledger Technology (DLT) – otherwise known as Blockchain.

ASX Chair Damian Roche apologised for and expressed disappointment at the disruption, stressing that the company was “committed to providing the Australian market with the very best and most viable long-term solution”.

“We began this project with the latest information available at that time, determined to deliver the Australian market a post-trade solution that balanced innovation and state-of-the-art technology with safety and reliability.

“However, after further review, including consideration of the findings in the independent report, we have concluded that the path we were on will not meet ASX’s and the market’s high standards.

“There are significant technology, governance and delivery challenges that must be addressed.”

Regulators react

ASIC and the Reserve Bank of Australia (RBA) have blasted the ASX for the adverse findings, stating that the delay “marks a significant setback to the replacement of critical national infrastructure for Australia’s cash equity markets and now brings into sharp focus the longevity of the existing CHESS platform”.

While ASIC chair Joe Longo acknowledged that the securities exchange “has rightly recognised” the need to pause the program, he expressed disappointment that the findings were “made at this late stage of a critical replacement program”, labelling it “altogether unsatisfactory”.

“ASX has failed to demonstrate appropriate control of the program to date, and this has undermined legitimate expectations that the ASX can deliver a world-class, contemporary financial market infrastructure.”

‘The regulators are closely monitoring ASX’s ongoing management of clearing and settlement under its licences. Our immediate focus is to ensure current CHESS continues to provide the level of service, reliability and resilience that is required. The regulators will bring to bear the full range of regulatory options to ensure this is the case,’ continued Mr Longo.

Reserve Bank Governor Philip Lowe added: “The announcement by ASX after many years of investment by both ASX and industry is very disappointing.

“[The] ASX needs to prioritise developing a new plan to deliver safe and reliable clearing and settlement infrastructure. The Reserve Bank of Australia also expects [the] ASX to maintain the current CHESS so that it continues to operate reliably and support confidence in Australia’s cash equity markets.”

“ASX having released the independent report must now carefully evaluate and select the most appropriate and timely way forward to replace CHESS.”

The regulators added that it expects any write-down of work and investment capitalised by the ASX to be borne fully by ASX Limited.

“The industry has incurred significant cost to date on the CHESS Replacement program and will need to continue to invest and commit resources until an alternate solution is rolled out,” they wrote.

The regulators also set out a joint letter of expectations for the ASX to successfully deliver on the project, beginning with “a robust response plan to address the deficiencies”.