ASIC Sues ASX Over Blockchain Project Misrepresentations
The Australian Securities and Investments Commission (ASIC) has taken legal action against the Australian Securities Exchange (ASX), the country’s largest stock market operator. The lawsuit, filed on August 14, 2024, claims ASX misled the public about the progress of a major software upgrade project.
Allegations of Misleading Statements
ASIC alleges that ASX broke the law when it stated in a February 2022 trading update that its new blockchain-based clearing and settlement platform was on track to launch the following year. According to the regulator, ASX had been aware for seven months that the project was falling behind schedule.
Project Background and Delays
The software upgrade was meant to replace ASX’s Clearing House Electronic Subregister System (CHESS), which had been in use since the 1990s. ASX first announced plans to upgrade the system using blockchain technology in 2016. The project was initially set to go live in April 2023.
Lack of Transparency and Internal Concerns
ASIC Chair Joe Longo called the situation a “collective failure by the ASX board and senior executives at the time.” The regulator claims that by late 2021, ASX had internally rated the project status as “red,” indicating significant risks to the delivery timeline. Despite these internal concerns, ASX publicly stated in February 2022 that the project was “progressing well” and “on track for go-live” in April 2023.
Cancelled Project and Financial Impact
The blockchain upgrade project faced multiple delays before being cancelled entirely in November 2022. This decision resulted in a write-down of approximately A$250 million (US$168 million) for ASX.
Legal Ramifications and Response
ASIC’s lawsuit seeks unspecified fines from ASX. Some reports suggest the exchange could face penalties of up to A$500 million (US$330 million), though the exact amount has not been confirmed. ASX CEO Helen Lofthouse acknowledged the seriousness of the situation and stated that ASX is reviewing ASIC’s allegations and cooperating fully with the investigation.
Corporate Governance Concerns
The lawsuit has raised questions about corporate governance at ASX. ASIC pointed out that while ASX provides governance recommendations to listed companies, its own conduct “undermined the principles it promotes for itself and other listed entities.”
Future Plans and Market Impact
Following the news of the lawsuit, ASX’s shares dropped by as much as 4% on August 14, underperforming the broader market. ASX now expects to complete the CHESS replacement project by 2029, working with a new supplier, India’s Tata Consultancy Services.
Importance of Project Management
ASIC’s Joe Longo emphasized the importance of the CHESS replacement project, calling it “critical national infrastructure crucial to the operation of the Australian economy.” He stressed that the project must be managed effectively and transparently to maintain confidence in Australia as an investment market.
Conclusion
The legal action comes after ASIC itself faced criticism from a Senate inquiry earlier in 2024 for failing to foresee the full extent of problems with the ASX upgrade project. As of August 14, 2024, ASIC has not yet determined the specific penalty it will seek in the lawsuit against ASX. The case is ongoing, and further developments are expected as the legal proceedings unfold.
Sources: Reuters
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