Australia's banking regulator on Dec. 17 formally began an investigation into Westpac Banking Corp. in connection with the ongoing money-laundering scandal and will require the bank to increase its capital requirement add-ons to A$1 billion.

The Australian Prudential Regulation Authority will probe the bank for possible breaches of the Banking Act and focus on the conduct that led to allegations of money laundering by the Australian Transaction Reports and Analysis Centre, or AUSTRAC.

Further, APRA will impose an immediate increase in Westpac's capital requirements of A$500 million, to reflect its heightened operational risk profile. This brings the total operational risk capital that the bank is required to hold to A$1 billion, following the increase APRA announced in July.

APRA said it will be investigating Westpac using its expanded legal powers under the Banking Executive Accountability Regime, or BEAR. The regulator will look into whether the bank's governance, control and risk management framework was adequate and whether there has been a failure to comply with accountability obligations under BEAR.

APRA will conduct its investigation simultaneously with an investigation being carried out by the Australian Securities and Investments Commission, as well as AUSTRAC's legal proceedings.

Westpac was accused by AUSTRAC of breaching anti-money laundering laws in up to 23 million instances.

Westpac acknowledged APRA's announcement, saying the additional A$500 million operation risk capital requirement will be implemented through an increase in risk-weighted assets and will apply from Dec. 31. The bank expects the change to reduce its common equity Tier 1 capital ratio by about 16 basis points.