Key Points
- The Australian Securities and Investments Commission (ASIC), Australia’s financial regulator, has filed civil proceedings against ASX Limited in the Federal Court for allegedly making misleading statements about its blockchain-based CHESS replacement project in February 2022.
- ASIC alleges that ASX’s claims that the blockchain upgrade project was “on-track for go-live” in April 2023 and “progressing well” were misleading and deceptive, as the project was not tracking to plan at the time.
Australia’s financial watchdog, the Australian Securities and Investments Commission (ASIC), has taken legal action against its largest market operator, ASX Limited, over alleged misleading statements about its blockchain-based Clearing House Electronic Subregister System (CHESS) replacement project. The civil proceedings, filed in the Federal Court on August 13, 2024, mark a significant development in the ongoing scrutiny of ASX’s abandoned attempt to upgrade its systems using blockchain technology.
ASIC’s Allegations and Concerns
The Australian regulator’s case centers on statements made by ASX in announcements on February 10, 2022. ASIC alleges that ASX’s claims that the blockchain-powered CHESS replacement project remained “on-track for go-live” in April 2023 and was “progressing well” were misleading and deceptive. According to the regulator, these statements implied that the project was tracking ASX’s announced project plan and was on course to meet future milestones.
ASIC Chair Joe Longo emphasized the gravity of the situation, stating, “ASX’s statements go to the heart of trust in the integrity of our markets. We believe this was a collective failure by the ASX Board and senior executives at the time.”
The Australian regulator contends that the project was not tracking to plan at the time of the announcements, and ASX lacked a reasonable basis to suggest it was on track to meet future milestones. ASIC argues that the true state of affairs on February 10, 2022, was that the project was not “progressing well,” contrary to ASX’s announcement.
Impact on Market Confidence and Participants
ASIC highlighted the critical importance of the blockchain-based CHESS replacement project, describing it as fundamental to the operation of the Australian economy. The regulator emphasized that ASX’s statements have wide-ranging consequences across the market, as companies and market participants rely on ASX’s communications to make their own decisions and investments.
The delay and subsequent pause of the blockchain upgrade project in November 2022 reportedly caused significant costs to ASX and market participants, who had relied on assurances about the project’s progress and scheduled go-live date. ASIC stressed that the failure to manage and communicate about the project effectively and transparently could lead to a lack of confidence in Australia as a market to attract investment.
ASX’s Response and Ongoing Developments
In response to the proceedings, ASX released a statement acknowledging the seriousness of the situation. Helen Lofthouse, ASX Managing Director and CEO, said, “We recognize the significance and serious nature of these proceedings. We cooperated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations.”
The ASX emphasized its commitment to moving forward and supporting its customers, stating that it has made substantial progress as an organization over the past two years. Under its continuous disclosure obligations, the company plans to keep the market informed and will report its FY24 results on August 16, 2024.
Broader Context and ASIC’s Enforcement Actions
This legal action against ASX is part of ASIC’s broader efforts to ensure compliance with market integrity rules in Australia. Earlier in 2024, ASX paid a penalty of $1,050,000 following an ASIC investigation into its compliance with market integrity rules. The Australian regulator has also taken recent action against a ‘pump and dump’ scheme and attempted manipulation of commodities markets.
As the legal proceedings unfold, the outcome of this case could have significant implications for market operators and listed companies in Australia. It could potentially reshape expectations around project management transparency and market communications in the financial sector. It also raises questions about the challenges and risks of implementing blockchain technology in critical financial infrastructure projects within the Australian market.
