The head of the prudential regulator says Westpac's money laundering and child exploitation scandal has shown Australian banks haven't spent enough on monitoring potentially suspicious transactions.
Australian Prudential Regulation Authority chair Wayne Byres told MPs on Monday that his organisation was considering what action to take against Westpac, which has been accused by AUSTRAC of breaching money laundering laws 23 million times and allowing payments potentially linked to child abuse.
Mr Byres told the House of Representatives' economics committee in Canberra that APRA would collaborate with financial crimes watchdog AUSTRAC and the Australian Securities and Investment Commission as it mulls its response.
Labor MP Andrew Leigh asked Mr Byres whether the scandal showed big banks needed to plough more cash into compliance.
"It's pretty clear they do," Mr Byres told the House of Representatives' economics committee on Monday.
Mr Byres said there were no concerns about the stability of Australia's second largest bank, which last week lost chief executive Brian Hartzer over the scandal, but that there were concerns about the culture set by its leadership.
"The bank is financially strong, but the AUSTRAC matter has raised issues of governance, culture and accountability in relation to risk management," Mr Byres said.
"While we must be careful not to duplicate or cut across matters for which AUSTRAC is the appropriate regulator, and which are before the Courts, we are actively considering what further action by APRA is required."
Mr Byres said that, while he wasn't excusing Westpac's apparent failure to implement AUSTRAC's 2016 recommendations on how to spot payments linked to child exploitation, the size and complexity of large banks, insurers and super funds meant there would always be failures.
"There are new products being added, there are old products being removed - and sadly and unfortunately even with the best will in the world there will be things that go wrong," Mr Byres said.
"If it were simple and easy to build set and then forget, any of those regulators wouldn't be required."