Westpac’s fresh $500 million blow
Embattled banking heavyweight Westpac has been dealt another blow in the wake of the money laundering and child exploitation scandal.
The 200-year-old lender dominated headlines last month after financial watchdog AUSTRAC alleged it failed to investigate customers who made transactions possibly linked to child exploitation in the Philippines and South-East Asia.
According to The Australian Financial Review, some payments may have gone towards "live-streamed child abuse".
The lender was also accused of breaching money laundering and counter-terrorism finance laws, with Westpac publicly accused of 23 million breaches.
The crisis claimed the scalp of Westpac chief executive Brian Hartzer as well as chairman Limdsay Maxsted, who will now bring forward his retirement to the first half of next year.
Now, the Australian Prudential Regulation Authority (APRA) - the banking regulator - has ordered Westpac to set aside an additional $500 million in capital as an investigation gets under way that could end in hefty fines or the disciplinary action of high-ranking staffers.
APRA is looking into whether Westpac breached the Banking Act - including the Banking Executive Accountability Regime (BEAR) - and will examine its conduct in the lead-up to the AUSTRAC allegations as well as its efforts to fix the problems after they were uncovered.
In a statement, Westpac confirmed it would co-operate with APRA.
"Westpac accepts the gravity of the issues presented by AUSTRAC," Westpac Group's chairman Lindsay Maxsted said today.
"As previously stated, these shortcomings are unacceptable and we are determined to urgently fix these issues and lift our standards.
"We will provide our full support to APRA through its investigation and review."
Meanwhile, APRA deputy chair John Lonsdale said AUSTRAC's statement of claim contained "serious allegations" that "question the prudential standing of Australia's second largest bank".
"While Westpac is financially sound, there are potentially substantial gaps in risk governance that need to be closed," he said.
"Given the nature of the matters raised by AUSTRAC, the number of alleged breaches and the period of time over which they occurred, this will necessarily be an extensive and potentially lengthy investigation."
APRA has vowed to impose that increase in capital requirements of $500 million "to reflect the heightened operational risk profile of the bank", which brings the total operational risk capital add-ons that Westpac is required to hold to $1 billion.
It will also launch an "extensive review program" focused on Westpac's risk governance which will include risk management, accountability, remuneration and culture.
APRA's investigation will coincide with one being carried out by the Australian Securities and Investments Commission (ASIC), as well as AUSTRAC's legal proceedings.