Westpac to be a guinea pig for APRA’s new BEAR powers

Westpac can’t escape APRA’s tough new executive accountability regime. Picture: Hollie Adams

It’s a mantle that was never sought, but Westpac looms as the guinea pig for new and significant legal powers granted to the Australian Prudential Regulation Authority to disqualify directors and executives.

Fortunately for Commonwealth Bank, its Austrac crisis predated implementation of the Banking Executive Accountability Regime in July 2018.

But there’s no such luck for the hapless Westpac, with BEAR very much in the frame after Austrac lodged its Federal Court statement of claim against the bank last November.

While the timeline for Westpac’s 23 million-or-so alleged breaches of anti-money laundering legislation reaches back well beyond July 2018, there’s still a 17-month overlap with BEAR.

A cursory examination of Austrac’s statement of claim shows that at least some of the bank’s alleged offending extended beyond the legislation going live.

For example, IFTI (internal funds transfer instructions) reporting failures identified by Austrac, responsible for 19.5 million contraventions, occurred from November 2013 to September 2018.

Also, while Westpac implemented the right child-exploitation detection scenario for its LitePay platform in June 2018, the financial intelligence agency said this project had still not been undertaken for other channels.

“As a result, Westpac has failed to detect activity on its customers’ accounts that is indicative of child exploitation,” Austrac said.

APRA will have the luxury of cross-referencing Westpac’s BEAR accountability map not only with the bank’s 128-page governance self-assessment, which was finalised in November 2018, but also the regulator’s comprehensive review program.

The program, covering risk management, accountability, remuneration and culture, is not quite the full prudential inquiry to which CBA was subjected, but it’s not far behind.

Westpac will have to demonstrate the steps taken to strengthen its internal risk governance, including measures identified by the bank in its self-assessment.

APRA can then connect governance and behavioural lapses to accountable directors and senior executives.

For the first time, it will have the power to disqualify senior officers, effectively ending their careers.

The Federal Court, meanwhile, has scheduled a case management hearing next Monday in the Westpac/Austrac matter.

The parties will update the court on settlement negotiations, including preparation of an agreed statement of facts.

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