Australian regulator sues ASX for misleading blockchain project claims – Crypto News

The Australian Securities and Investments Commission (ASIC) has initiated Federal Court proceedings against the Australian Securities Exchange (ASX), claiming the country’s largest market operator made false and deceptive statements about an unsuccessful $250 million blockchain project.

The ASX sought to replace the outdated Clearing House Electronic Subregister System, which had been used in Australia to clear and finalise transactions for many years. At the start of 2016, the ASX announced a comprehensive plan to modernise this system using decentralised blockchain technology.

The lawsuit targets the reports issued by the ASX to the public. The Australian Securities and Investments Commission claims that these reports were misleading and deceptive. According to the regulator, the disputed incident occurred on February 10, 2022. At that time, the ASX claimed that the CHESS Replacement project was “on track for go-live,” following a readiness assessment completed in April 2023. Moreover, the ASX stated that the technology “was continuing to progress well,” and the report confirmed the project “continued to meet its availability and stability targets.”

Additionally, ASIC’s chair, Joe Longo, commented on the situation, describing it as a collective failure on the part of the ASX board and the senior leaders at that time. He stated, “ASX’s statements go to the heart of trust in the integrity of our markets,” underscoring the importance of market trust in such communications. Longo emphasised, “Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments.”

Regarding the timeline of events, the following aspects raise questions about the transparency of ASX:

1. At the end of 2017, the tech firm Digital Asset was engaged to create the blockchain-based ledger for the new CHESS.
2. By the end of 2020, the project was rated by the company as “red,” indicating that there were material risks surrounding its timely delivery.
3. However, the problem was only brought to the attention of ASX’s audit and risk committee in early February 2022.
4. At the same time, on February 10, 2022, ASX made public statements that the project was progressing well.
5. Six weeks later, ASX announced that the project’s launch would likely be delayed.
6. Finally, in mid-July 2022, after nearly seven years of development and approximately $250 million invested, ASX terminated the project.

According to ASIC, when the statements were made in February 2022, the ASX had no reasonable grounds to conclude that the ongoing dynamics of the project would lead to the achievement of future milestones. In other words, the reality was the exact opposite, and the ASX’s reports regarding the ordering systems were definitely misleading.

In addition, if the CHESS replacement project had been abandoned, it could have had significant consequences for the Australian financial markets. According to Longo, “The CHESS replacement project must be managed effectively and transparently. Failure to do so can lead to a lack of confidence in Australia as a market to attract investment.”

However, ASIC has requested declarations, pecuniary penalty orders, and other relief. There are a few lessons to be learned from both the ongoing court action and its underlying causes. First, market operators need to better communicate their plans related to financial infrastructure, regardless of their nature. Second, the discovery of flaws in the technology solution by an Accenture review underscores the considerable perils and hurdles associated with implementing large-scale technological changes in what is essentially the most critical part of the financial sector.

Certainly, regulators globally will closely track the market and technology developers, along with further court decisions regarding the fate of the case. Moreover, the lessons learned about appropriate project evaluation, honest communication with both partners and end users, and having an explicit understanding of the possible downsides of cutting-edge technologies used in such crucial financial infrastructure as a stock exchange will be widely disseminated across the industry.

(Image by Arek Socha)

See also: US SEC targets alleged $650 million global crypto fraud

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Tags: blockchain, decentralisation