APRA puts Westpac on notice over Austrac scandal

Regulator APRA has raised the prospect disqualifying Westpac directors and executives.

APRA Chairman Wayne Byres appearing at senate estimates at Parliament House in Canberra. Picture Kym Smith

The banking regulator has raised the prospect it could disqualify Westpac directors and executives in the wake of the child exploitation funding scandal and said the money laundering failures show Australia’s biggest banks have been handing out too much profit to shareholders rather than investing in compliance systems.

Appearing before the House of Representatives standing committee on Monday, Australian Prudential Regulation Authority chairman Wayne Byres told MPs the watchdog was considering what action to take against Westpac, which has been accused by Austrac of breaching money laundering laws 23 million times and allowing payments potentially linked to child abuse.

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“We’re thinking about a range of options,” Mr Byres said.

“These are very serious allegations which have caused us, as the prudential regulator focused on the financial safety of institutions and the system, to carefully consider what they mean for the prudential standing of Australia’s second largest bank,” he said.

“While we must be careful not to duplicate or cut across matters for which Austrac is the appropriate regulator, and which are before the Courts, we are actively considering what further action by APRA is required.”

Outgoing Westpac CEO Brian Hartzer. Picture: AAP

“This includes examining whether obligations under the Banking Executive Accountability Regime have been met, and how Westpac’s management of operational and compliance risks more broadly needs to be enhanced. As would be expected, we are also ensuring we closely co-ordinate our activities with our fellow regulators – especially Austrac and ASIC (the Australian Securities and Investments Commission.”

The BEAR regime, which applies the board of directors, the chief executives, the rank of executives under the chief executive, could result in the “disqualification of individuals” if breaches are serious enough, Mr Byres said

He said APRA was interested in finding out the extent to which information was known in one part of the bank but didn’t filter up, or whether where warnings that were ignored by management.

Compliance spending

Labor MP Andrew Leigh asked Mr Byres whether the scandal showed big banks needed to plough more cash into compliance.

“It’s pretty clear they do,” Mr Byres said.

Mr Byres said the amount of profits paid out to shareholders “could play a role” in the lack of proper compliance systems.

He said when returns have been very high in the recent past, it had been “easy” to both pay out large dividends and reinvest in growth.

“There will be a much harsher choice” going forward, Mr Byres said.

Mr Byres said there were no concerns about the stability of Australia’s second largest bank, which last week lost chief executive Brian Hartzer over the scandal, but that there were concerns about the culture set by its leadership.

“The bank is financially strong, but the Austrac matter has raised issues of governance, culture and accountability in relation to risk management,” Mr Byres said.

In 2017, Commonwealth Bank was sued in the Federal Court by Austrac over 50,000 instances where it broke the law, ultimately leading to a record-breaking $700m fine.

This month Austrac accused Westpac of 23 million breaches of anti-money-laundering legislation, including allegations it failed to act when it was facilitating thousands of child exploitation payments to The Philippines and Southeast Asia.

Westpac is expected to face a fine of close to $1bn after failing to properly monitor billions of dollars in international transfers, known as IFTIs, or report those transactions to regulators.

While NAB told shareholders this month in a note attached to its annual report that it believed it may be involved in a breach, or alleged breach, of laws governing “bribery, corruption and financial crime”.