Bendigo Bank in crisis after Deloitte discovers failings in its financial crime-fighting measures

Bendigo Bank identified suspicious transactions consistent with money laundering behaviour at a single branch. But Deloitte has identified six years of failures.

Bendigo and Adelaide Bank has revealed major flaws in its systems to detect and prevent money laundering and terrorism financing.

Bendigo and Adelaide Bank’s board has been plunged into crisis after Deloitte identified widespread weaknesses in its systems designed to detect and prevent money laundering and terrorism financing.

The regional lender engaged the consultant to conduct an independent investigation in August this year after discovering suspicious transactions indicative of money laundering patterns at one of its branches. The bank reported the activity to the financial crimes regulator Austrac, which is currently investigating, and the police.

However, Deloitte’s independent report discovered that Bendigo Bank’s deficiencies in its anti-money laundering and counter terrorism-financing identification, mitigation and risk management extended beyond that branch alone, and as far back as August 2019.

“Deloitte observed that these deficiencies extend beyond just the branch and identified weaknesses across many key aspects of (money laundering / terrorism financing) risk management, including in relation to the bank’s approach to (money laundering / terrorism financing) risk assessment and enhanced customer due diligence; oversight of (its) risks; its transaction monitoring program and its approach to customer risk rating,” Bendigo Bank said in a statement published on the ASX on Tuesday morning.

“In relation to transaction monitoring, Deloitte’s findings confirmed that there was deficient coverage of many (money laundering/ terrorism financing) risk indicators.”

Bendigo Bank’s board said it was “very disappointed” with the findings and has committed to fixing all the problems to ensure it is compliant with the law.

“While the final outcomes (including costs) are unknown at this stage, the bank will keep the market informed in line with its continuous disclosure obligations,” the statement added.

The board said it would continue to work with the regulators, including Austrac, APRA and ASIC.

A spokesman for Austrac said it had “been engaging with Bendigo Bank in relation to the matter, and is considering what, if any, regulatory action is appropriate”.

“As the matter is ongoing, it would not be appropriate for Austrac to comment further at this time,” the spokesman added.

Bendigo’s shares suffered their worst day since mid-February, diving 8.6 per cent to a seven-month low of $10.05. They closed at $10.19.

In a note to clients, Citi analyst Thomas Strong said Bendigo’s continuous disclosure meant that the announcement to the market was made before management could establish a coherent plan to fix the issues.

“While it is too early and we do not have sufficient detail to speculate what sort of regulatory response and remedial plan these findings might invite, it is likely that the uncertainty will weigh on the shares until further clarity can be delivered,” Mr Strong wrote.

Mr Strong said he expected the issue to dominate Bendigo’s strategy day, due to be held next week on December 4. However, he warned it will likely be too early for management to “put definitive numbers around an uplift program”.

“This potentially complicates the messaging, as productivity is a key pillar of the bank’s aspiration to improve returns, but today’s announcement highlights that investment and compliance pressures will persist for BEN and the sector,” he added.

Meanwhile, Macquarie analyst Carlos Cacho warned that fixing the mess could cost $30m to $70m based on what other banks have paid for similar failings in the past., representing a 4 to 10 per cent hit to earnings. But Mr Cacho said the real damage may run deeper.

“Addressing these risk issues is likely to take some focus away from BEN’s material transformation and cost-out program and could delay their targeted improvement in returns,” he said.

Bank of Queensland held $50m in extra capital and spent $60m on fixes when it faced similar problems in 2023. The big four paid much more, with CBA fined $700m and Westpac hit with a $1.3bn penalty.

Bendigo and Adelaide Bank is Australia’s sixth-largest bank by market capitalisation. It is the parent of digital bank Up.

Finance Sector Union National Secretary Julia Angrisano said that Bendigo’s failings were not isolated.

“We’ve seen major compliance breakdowns at ANZ, Westpac and NAB in recent years. When banks underinvest in core systems and governance, it’s workers who end up carrying the stress, risk and fallout,” Ms Angrisano said.

“Across the sector, from ANZ’s breaches to Bendigo’s latest crisis, the pattern is the same: management failures at the top translate into pressure, confusion and unsustainable workloads for frontline staff. Workers deserve better than constant crises they didn’t create.

“This should be a wake-up call for the whole industry. If banks can’t get basic compliance right, they need to take a hard look at resourcing and governance, not push even more pressure onto workers who are already stretched and continue sector wide job cuts.“

The AFP, APRA and ASIC all declined to comment.

Originally published as Bendigo Bank in crisis after Deloitte discovers failings in its financial crime-fighting measures