Morningstar has downgraded their stewardship rating for Westpac after the bank breached money laundering laws 23 million times.
Westpac’s stewardship rating now sits at “standard” rather than “exemplary”. Morningstar also factored in the bank’s performance at the royal commission, which exposed a number of risk management failings and cases where customers were treated badly.
“The civil proceedings by AUSTRAC allege failings in relation to correspondent banking, risk assessments, customer due diligence, transaction monitoring, record keeping, and the passing on of certain data in funds transfer instructions,” a note from Morningstar reads.
“While no system is foolproof, additionally disappointing are reports the bank, in some cases, took years to rectify the issue.”
Morningstar assumes a fine of a similar level to that levelled at Commonwealth Bank when they were taken to court by AUSTRAC. While Westpac had more breaches, the smaller transactions could mean the penalty is similar.
The fact that Westpac self-reported the breaches could also soften the blow.
However, Morningstar concedes the fine could be much higher.
“At the time, and even today, the bank is unable to estimate what a potential penalty could be.”
However, Morningstar does not believe the penalty will impact Westpac’s ability to meet its common equity Tier 1 ratio target of 10.5 per cent.
“We estimate a penalty of $700 million detracts around 17 basis points from its capital ratio, implying the bank would still have a comfortable buffer over the regulatory requirement,” it said.