Australia’s ASIC Sues ASX Over Misleading Blockchain Upgrade Claims

On Wednesday, Australia’s Securities and Investments Commission (ASIC), the country’s corporate watchdog, filed a lawsuit against the Australian Securities Exchange (ASX), accusing it of improperly managing the replacement of the Clearing House Electronic Subregister System (CHESS) with a blockchain-based solution.

The lawsuit contends that ASX misled investors by announcing in early 2022 that the project was progressing as planned. However, merely six weeks later, ASX disclosed that the project faced potential delays.

To further investigate, ASX commissioned an independent review conducted by Accenture later in the year, which uncovered critical scalability issues within the blockchain technology that underpins the new system. These challenges ultimately led to the project’s suspension and a financial write-off of AUD 250 million.

CHESS, the long-standing system used for share ownership registration and trade processing on the ASX since 1994, was set for an upgrade. The ASX embarked on developing a replacement system in 2015, integrating blockchain technology in 2017. Despite encountering numerous obstacles, the ASX maintained in February 2022 that the new system would become operational in 2023.

ASIC claims that ASX was aware of the project’s delays but publicly presented a contrary narrative, thereby creating a misleading perception of the project’s progress.

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ASX’s Misleading Claims Undermined Market Trust: ASIC Chair Joe Longo

“ASX’s statements go to the heart of trust in the integrity of our markets,” ASIC Chair Joe Longo said. “We believe this was a collective failure by the ASX Board and senior executives at the time.”

“Companies and market participants rely on what the ASX says about its operations to make their own decisions and investments. We expect the ASX to be a place to list and invest with confidence. When the ASX falls short, it has wide ranging consequences across the market.”

Longo stated that the project’s delay and eventual halt in Nov. 2022 led in substantial financial losses for both the ASX and investors who had relied on the company’s claims about the project’s progress and launch timeline.

ASX Responds to ASIC Lawsuit

Helen Lofthouse, CEO of ASX, acknowledged the gravity of the legal action initiated by ASIC, expressing her commitment to cooperating fully with the regulator’s investigation and undertaking a thorough review of the allegations made.

While ASIC has yet to outline the specific penalties it is seeking, it is noteworthy that ASX has previously faced consequences for market integrity violations, having paid a fine of A$1.05 million fine ($695,415) in March 2024 for separate infractions.

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