Companies spent $250m preparing for ASX’s aborted blockchain-based clearing house replacement

Stakeholders have already spent as much as $250m preparing the ASX’s stalled blockchain-based replacement program for CHESS, a federal parliamentary committee has been told.

ASX chair Damian Roche and chief executive Helen Lofthouse.

Stockbrokers, share registries and other stakeholders around the ASX have already spent as much as $250m preparing for its stalled blockchain-based replacement program for its CHESS clearing and settlement program, a federal parliamentary committee has been told.

Appearing before the Parliamentary Joint Committee on Corporations and Financial Services at a public hearing in Sydney on Thursday, FinClear chief executive David Ferrall said the ASX’s offer of $15m in terms of a fee rebate for its partners who are working with it on the replacement program did not go anywhere near what had been spent so far.

The ASX suspended its planned blockchain-based replacement program last November pending a rethink of the project, and is now promising to announce its updated plans by the end of the year.

FinClear chief executive David Ferall.

Asked by one committee member about a potential $25m in payments to ASX stakeholders, Mr Ferrall said that figure “did not come anywhere near the costs” which had already been incurred across the companies dealing with the ASX.

He said any estimate of $25m in payment to some stakeholders represented more like “10c in the dollar” of what had actually been spent.

But he said that stakeholders were currently less concerned about being recompensed for their investments, and were more concerned about engagement with the ASX over its new proposal which is currently still under consideration.

Stockbrokers and Investment Advisers policy manager Michelle Huckell told the committee that a survey of nine of its members, which include stockbrokers, showed they had spent $69m so far directly in working on the project.

“Some members have spent more than $10m and others a few hundred thousand,” she said.

But she said that the nine who were prepared to provide cost estimates only represented a third of the association’s total membership which did business with the ASX.

She said her members did not know how much more they would have to spend to complete the replacement program nor whether any of their costs would be “recoverable”.

Computershare executives told the hearing that their company had had as many as 60 people working on the program over the past seven years, costing between $15m and $20m.

Australian Securities and Investments Commission chair Joe Longo. Picture: David Geraghty

The ASX last week announced a new $70m partnership program for its stakeholders to work with them on the replacement program, including $15m in fee rebates and $55m of incentives if certain project milestones were met.

Australian Securities and Investments Commission chair Joe Longo told the inquiry that the ASX still had a “long way to go to restore trust and confidence” in its capacity to handle its update of its CHESS clearing and settlement program.

Mr Longo said he felt a “lot has gone astray” when it came to the ASX replacement program for CHESS.

He said he believed it would take several years before the replacement for the system, which was originally mooted in 2016, was actually implemented.

“We know what is going to replace it is years away,” he said. Mr Longo said there had been changes in the top level at the ASX, including at chief executive and board level, but it was too early to tell if the organisation was taking “real action” to address its problems and could restore trust in the organisation.

Reserve Bank deputy governor Michele Bullock. Picture: John Feder

“We are going to be having these discussions for a long time,” he said. “It took seven years for the ASX to land where they did in November. The issues are not going to be fixed overnight.”

ASX chief executive Helen Lofthouse and chair Damian Roche told the inquiry that they recognised the company needed to do more to restore the trust of regulators and stakeholders.

Reserve Bank deputy governor Michele Bullock said the bank had noticed that there was a “substantial shift” in the approach of the ASX towards the regulators since Ms Lofthouse had taken over as chief executive in August last year.

Mr Longo said that ASIC, as the corporate regulator, and the Reserve Bank had stepped up their oversight over the ASX in recent times because of a loss of confidence in the organisation.

“There has been a loss of trust so the intensity and formality of our oversight of ASX has changed,” he said. “We are sending a message to the ASX that we are not going to rely on assurances or day to day (contacts).”

He said ASIC had decided to make a “gear change” in its oversight of the ASX because “they have let us down in the past”.

“Between us and the RBA, together we are trying to do our best to focus proper regulatory supervision over the ASX,” he said.

Originally published as Companies spent $250m preparing for ASX’s aborted blockchain-based clearing house replacement