ASX chairman Damian Roche must go after trust failure

ASIC is pursuing ASX for misleading and deceptive conduct.

As the nation’s exchange operator, the ASX has to hold itself to a higher standard than others.

And if ASIC’s searing allegations are proven correct, not only is this a serious breach of law, ASX’s board led by chairman Damian Roche failed the basic requirement to operate the markets with integrity.

If the claims are proven, Roche, who signed off on the accounts that pushed good news into the market in February 2022 despite warnings that came to the ASX for months that its technology project was badly going off the rails, must go. It never sat well that long-time director Roche was overseeing the ASX boardroom rebuild, now there are no excuses.

At its heart, the ASIC legal action isn’t that complex. It is accusing the ASX’s board and management of misleading and deceptive conduct by going to the market and deliberately telling investors and others one thing, when in fact it wasn’t the case.

ASX chairman Damian Roche and chief executive Helen Lofthouse.

This is not a tangle of continuous disclosure rules, rather it’s about the more serious conduct where somewhere a conscious decision was made to cover up how bad things had become.

Former boss Dominic Stevens, who oversaw the entire train wreck of the CHESS upgrade, his deputy chief Peter Hiom and several other executives including the chief financial officer have gone, now it’s time for the board to accept collective failure for the mess.

A career investment banker, Roche had been on the ASX board for several years including when the CHESS upgrade was approved and he became chair in April 2021.

As the year went on, the warnings got louder from its tech provider Digital Asset there were serious problems on the coding, which was putting pressure on future milestones.

The unanswered question running through ASIC’s case is just how much the ASX boardroom specifically knew, or whether indeed directors were asking the right questions and simply getting the wrong answers from management over the extent of the problems.

This is likely to emerge in ASX’s own defence filings. But it’s almost inconceivable the ASX board could have had such a collective blind spot that everything was going fine in its once-in-25-year overhaul built on untested technology.

In November of that year and thereafter Digital Asset graded the delivery status of the project “red” meaning there were material risks to delivery. It’s at this stage it should have told the market as well as stockbrokers who were spending millions of dollars upgrading their own technology to meet the ASX’s demands.

ASIC is running its case as a civil matter. The regulator, which has come under its own pressure lately amid calls of a break-up of its operations, is confident of getting a legal outcome.

ASIC chair Joe Longo. Picture: Aaron Francis

Despite a case built around the behaviour of individuals, the case is on naming any directors or former management where it is harder to prove the state of mind at the time.

ASIC chair Joe Longo says after a thorough investigation, this was a deliberate decision to run the case against the entire ASX.

“We see this as an organisational failure,” Longo tells The Australian. “The bottom line is that we don’t think we can say that responsibility for getting those statements wrong could be sheeted home to just one or two individuals.”

Given ASX’s position in the market, running listed equities as well as producing corporate governance principles, the regulatory response over its failings had to be hard. This is to send a message to the entire market.

“For a well-functioning financial system, it’s all about trust and integrity. You cannot get through the day without that,” Longo says. “And if you’re a major institution like an ASX or a bank or a listed entity, people are entitled to believe what you tell them.

“This is always going to be a fundamental part of what ASIC will be concerned about and what it will hold people accountable to.”

ASX released a statement under chief executive Helen Lofthouse, the CEO who pulled the pin on the initial CHESS upgrade.

“We recognise the significance and serious nature of these proceedings. We co-operated fully with ASIC’s investigation and are now carefully reviewing and considering the allegations,” she said.

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