The Australian Prudential Regulation Authority (APRA) says it has launched an investigation into possible breaches of Australia's Banking Act by Westpac Banking Corporation, parent of Westpac New Zealand.
APRA says it will focus on the conduct that led to the matters alleged last month by AUSTRAC, as well as Westpac’s actions to rectify and remediate the issues after they were identified. AUSTRAC alleges Westpac contravened anti-money laundering laws more than 23 million times.
APRA says its investigation will examine whether Westpac, its directors and/or senior managers, breached the Banking Act including the Banking Executive Accountability Regime (BEAR), or contravened APRA’s prudential standards.
"Given the magnitude and nature of the issues alleged by AUSTRAC, APRA is aiming to ensure that fundamental deficiencies in Westpac’s risk management framework are identified and addressed and that Westpac and those responsible are held accountable as appropriate," APRA says.
Additionally APRA is imposing an immediate increase in Westpac’s capital requirements of A$500 million, which it says is to reflect the heightened operational risk profile of the bank. This brings the total operational risk capital add-ons that Westpac is required to hold to A$1 billion, following an increase announced by APRA in July. APRA is also initiating an extensive review programme focused on Westpac’s risk governance, covering risk management, accountability, remuneration and culture.
“AUSTRAC’s statement of claim in relation to Westpac contains 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," says APRA deputy chairman John Lonsdale.
“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 says it will be able to use legal powers expanded and strengthened since the 2017 prudential inquiry into ASB's parent Commonwealth Bank of Australia, including enhanced investigative powers and the implementation of the BEAR in 2018.
"APRA will conduct its investigation simultaneously with an investigation by the Australian Securities and Investments Commission (ASIC), as well as AUSTRAC’s legal proceedings, with each agency cooperating where appropriate," APRA says.
In its own statement Westpac acknowledged APRA's announcement. Chairman Lindsay Maxsted says the bank accepts the gravity of the issues presented by AUSTRAC.
"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," Maxsted says.
He says the additional A$500 million operational risk capital requirement will apply from December 31 and reduce Westpac's Level 2 Common Equity Tier 1 capital ratio by about 16 basis points.
The details below on the scope of APRA's investigation come from APRA.
Scope of APRA’s investigation into Westpac
The prudential matters that are the subject of APRA’s investigation are:
Whether Westpac, its directors, and/or its senior managers have contravened the Banking Act 1959 and the prudential standards by engaging in, and in the way they responded to, the conduct set out in and otherwise related to the AUSTRAC proceedings.
In considering possible contraventions of the Act and the prudential standards, the investigation will examine whether:
(a) Westpac’s governance, control and risk management framework was adequate; and appropriately implemented;
(b) Westpac’s accountability and remuneration arrangements were adequate, and appropriately implemented to effectively manage non-financial risks;
(c) there has been a failure to comply with accountability obligations under the Banking Executive Accountability Regime;
(d) there has been a failure to comply with the requirements of the prudential standards including Prudential Standard CPS 510: Governance, Prudential Standard CPS 520: Fit and Proper, and Prudential Standard CPS 220: Risk Management; and
(e) there was a failure to promptly notify APRA of any significant breaches and/or a breach of accountability obligations.