Westpac scandal is the money-laundering and child exploitation which resulted in senior Westpac staff, including its chief executive, Brian Hartzer, and its chairman, Lindsay Maxsted, leaving the bank. Westpac has admitted most, but not all of the alleged failings.
In its new report, the bank said there were five root causes of its continuing problems: “an organisational construct that creates complexity”, “an immature and reactive risk culture in non-financial risk management”, failings in the “three lines of defence” model the bank uses to combat fraud and other risks, a lack of management capability and “challenges in execution and staying the course”.
Westpac said that it had been too focused on finding individuals to blame for problems when they arose, rather than addressing systemic issues of Westpac scandal.
“Awareness of risks and obligations has been inconsistent, and the bank’s approach to managing non-financial risk has not been sufficiently proactive,” it said.
“Contributory behavioural traits include a tendency to focus on individual issues rather than broader shortcomings and inconsistent challenging of assumptions from a risk perspective.”
Like most banks, Westpac uses a three lines of defence system to detect and combat risks. Operational managers are supposed to form the first line, internal controls the second and audit oversight the third.
However, Westpac said this was not “consistently understood and embedded” in the bank.Advertisement
“This has blurred boundaries and meant some things ‘fall through the cracks’ as roles, responsibilities and accountabilities can be unclear,” it said.
“These issues have been particularly evident in the first line where stronger ownership of risk outcomes is required.”
Board members have also complained that management was unwilling to tell them bad news.
The bank said it was making changes, including increasing board scrutiny of risk and hiring 270 new risk officers, but more was needed.
Westpac has historically been one of the most aggressive banks in its dealings with regulators – it was the only bank to fight a rate-rigging lawsuit brought by the Australian Securities and Investments Commission and led lobbying efforts against responsible lending rules.
What did Westpac do wrong?
Westpac is accused of breaching laws aimed at hindering criminal money laundering and the financing of terrorism. With some of those breaches involving supicious transactions in South-East Asia, it is alleged Westpac has potentially facilitated the most heinous of crimes – the commerce of child sex abuse.