Nobody was shocked when APRA announced their investigation of Westpac on Tuesday morning. Chairman Wayne Byres had already said the regulator would do as much when he appeared before the standing committee on economics on 2 December. But it’s more bad news for the bank, and chairman Lindsay Maxsted must be getting tired of saying sorry.
“Westpac accepts the gravity of the issues presented by AUSTRAC,” chairman Maxsted said in a statement on the ASX.
“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.”
Westpac must now be providing so much support to the various regulators that there could scarcely be anybody left to run the day-to-day business of the bank – but they’ll have to spare somebody to dig up the extra $500 million APRA’s asked them to add to their operational risk capital, which has brought the total that Westpac is required to hold to $1 billion.
APRA’s investigation will start at the top, examining whether Westpac’s governance, control and risk management framework were adequate and appropriately implemented, before moving onto the previous remuneration arrangements – which shareholders decided they were pretty happy with at the bank’s gruelling six-hour AGM last week.
The investigation will be the first significant test of APRA’s new powers under the Banking Executive Accountability Regime (BEAR) and the regulator is likely to come out guns blazing following its humiliating court defeat at the hands of IOOF. While the regulators will probably seek the disqualification of a couple of middle managers, a maximum financial penalty of $210 million for BEAR breaches means that its investigation will be less grievous than Westpac’s upcoming court case with AUSTRAC.
Though the fine is expected to be $1 billion, it remains to be seen whether AUSTRAC will really try and break the bank.
If that happens, expect another capital raise – and more apologies from chairman Maxsted.
