Westpac’s agreement with AUSTRAC has no ratings impact
According to Fitch Ratings, Westpac Banking Corporation’s (WBC's) agreement with the Australian Transaction Reports and Analysis Centre (AUSTRAC) will have no impact on Westpac’s ratings as the risk and governance shortcomings have been already factored in.
Under the agreement, Westpac would need to pay a civil penalty of $1.3 billion to AUSTRAC, subject to Federal Court approval.
Fitch said it had revised the factor outlook on WBC's management and strategy score of 'a+' to negative in January 2020, to reflect the weaknesses in the bank's governance of non-financial risks.
“The factor outlook of WBC's 'a+' risk appetite score was also revised to negative at the same time due to the shortcomings in its operational risk controls. We maintained the negative outlooks on these two factors in our latest review in September 2020, reflecting our view that the remediation of identified issues is unlikely to be completed in the short term,” the agency said.
“However, we expect the bank's programme announced in July 2020 to improve its management of operational risks in the longer term.”
Fitch viewed the civil penalty as “manageable” for Westpac - at the current rating level - despite Australian banks' profitability having been affected by the COVID-19 pandemic.
“WBC admitted to a number of contraventions of the Anti-Money Laundering and Counter-Terrorism and Financing Act 2006 within the relevant period, including failing to give international funds transfer instruction reports to the AUSTRAC CEO within required time frame on 19.6 million occasions and various other breaches,” it said.
Earlier this month, Fitch maintained its negative outlook on the ratings of Australia’s four largest banks due to the uncertain environment and said this would not be revised until early to mid-2021.
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