ASIC and the Reserve Bank (RBA) have instructed ASX to improve its program delivery capabilities and bring the CHESS replacement project back on track after the market operator announced it was halting activities on the much-delayed project.
An independent review by Accenture published on Thursday identified a number of significant challenges with the solution design and its ability to meet ASX’s requirements.
“That these findings can be made at this late stage of a critical replacement program is altogether unsatisfactory,” ASIC chair Joe Longo said in a joint statement with the RBA.
“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.”
Despite ASX commencing work on the project in 2015, Accenture found that the application software is only 63 per cent complete, with the timeline to completion remaining uncertain.
Accenture also identified complexity in the integrated solution design as well as vendor management issues in the way that teams from ASX and blockchain technology firm Digital Asset operate and interact, which were said to present challenges in regard to project delivery.
“ASX has rightly recognised that pausing the program while it revisits the technology design for the CHESS replacement was a necessary decision,” said Mr Longo.
“It opens the way for the resolution of the issues identified in the independent report and ASX securing the necessary capabilities to deliver the replacement.”
RBA governor Philip Lowe described ASX’s announcement as “very disappointing” following many years of investment by both the market operator and the industry.
“ASX needs to prioritise developing a new plan to deliver safe and reliable clearing and settlement infrastructure,” he said.
“The Reserve Bank of Australia also expects ASX to maintain the current CHESS so that it continues to operate reliably and support confidence in Australia’s cash equity markets.”
In a statement to the market on Thursday, ASX pledged to reassess all aspects of the project and apologised for the disruption caused to date.
“We began this project with the latest information available at the time, determined to deliver the Australian market a post-trade solution that balanced innovation and state-of-the-art technology with safety and reliability,” said ASX chairman Damian Roche.
“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.”
ASX noted that all of the capitalised software in relation to the development will be derecognised in the first half of the financial year, with the non-cash recognition charge estimated to be in the range of $245 to $255 million pre-tax or $172 to $179 million after tax.
“To be clear, the derecognition charge reflects the uncertainty of the future value of the current solution design. It does not prevent us from using parts of what we have already built if we determine there are adjustments we could make to our current design, which will enable it to meet ASX’s and the market’s high standards,” said ASX managing director and CEO Helen Lofthouse.
“Our clearing and settlement licences are critical. We take feedback seriously and examine it carefully. We are aiming for the best solution for the Australian market, and will be wide-ranging and thoughtful in our analysis of the options.”
As part of its announcement, ASX confirmed that experienced technology transformation executive Tim Whiteley has been appointed project director for the next phase of the project.
“He will focus on revisiting the solution design, establishing new project governance arrangements, strengthening vendor management and positioning the project for the next delivery phase,” the market operator said.
An industry forum will also be established to provide input and receive regulator status reporting on the CHESS replacement project. ASX said that it will update stakeholders on its progress as part of its half-year results in February next year.
