Westpac's woes continue, as regulator APRA orders the bank to hold an extra $500 million in reserve

• Westpac has been slapped with a legal mandate to hold an extra $500 million in reserve following its "heightened risk profile".

• The instruction from the Australian Prudential Regulation Authority (APRA) comes as it announces a formal investigation into whether bank execs broke the Banking Act, as part of 23 million contraventions of anti-money laundering and counter-terrorism finance legislation.

• The scandal has already cost the bank its former CEO Brian Hartzer and outgoing chairman Lindsay Maxsted.

• Visit Business Insider Australia’s homepage for more stories.

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It's a hell of a safety deposit.

Westpac will be required by regulator APRA to hold an additional $500 million in reserve to cover its "heightened risk profile" – a wonky way of describing the very real possibility it will be slapped with the biggest fine in corporate history.

"AUSTRAC’s statement of claim in relation to Westpac contains serious allegations that question the prudential standing of Australia’s second largest bank," APRA deputy chair John Lonsdale said in a release issued to Business Insider Australia.

"While Westpac is financially sound, there are potentially substantial gaps in risk governance that need to be closed."

It's alleged Westpac contravened anti-money laundering and counter-terrorism financing legislation a bold 23 million times. Of course, that's not all. The bank also may have processed money for customers that posed "known child exploitation risks". The scandal has already claimed the scalps of former CEO Brian Hartzer and outgoing Westpac group chairman Lindsay Maxsted

In addition, APRA has formally commenced an investigation to see whether the bank's director and senior managers breached the 1959 Banking Act as part of the giant snafu.

"Given the nature of the matters raised by AUSTRAC, the number of alleged breaches and the period of time over which they occurred, this will necessarily be an extensive and potentially lengthy investigation," Lonsdale said.

In a statement issued to Business Insider Australia, Maxsted said the bank "accepts the gravity of the issues presented by AUSTRAC.

“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," he said.

The bank is currently undertaking its own review, aptly titled the "Accountability and Financial Crime Program Review".

The extra funding requirement means Westpac will legally have to hold $1 billion in reserve at all times. While it sounds like a good problem to have, the legal mandate will be a giant pain for the big four bank, tying up capital that could otherwise be deployed to turn a profit.

Its stock price has responded accordingly, dropping around 1% on Tuesday morning.

With Westpac expected to be fined more than $700 million – the current record corporate fine paid by the Commonwealth Bank – it certainly won't be the last headache for the bank.