Regulator demands Westpac adds $500m increase in capital

The prudential regulator is demanding Westpac set aside an extra $500 million in capital to reflect a heightened risk profile in the wake of the lender's child exploitation and money laundering scandal.

APRA today imposed the immediate increase in Westpac's capital requirements as it launched its own investigation into the conduct that led to an alleged 23 million breaches of money laundering laws, including a failure to properly monitor payments potentially linked to child sex offences in Southeast Asia.

The $500 million capital increase brings Westpac's total operational risk add-ons it is required to hold to $1 billion, following the increase announced by APRA in July.

APRA said its probe will run concurrently to a separate investigation by the Australian Securities and Investments Commission and legal proceedings by AUSTRAC, which in itself could result in a more than billion-dollar fine for Westpac.

"APRA will focus on the conduct that led to the matters alleged last month by AUSTRAC, as well as the bank's actions to rectify and remediate the issues after they were identified," the regulator said in a statement.

APRA said its investigation will allow it to use legal powers that have been expanded since its inquiry into Commonwealth Bank in 2017 over various money laundering and counter terrorism funding breaches.