The Australian Prudential Regulation Authority (APRA) also ordered Westpac to double its capital requirement add-ons to AU$1 billion ($686.8 million), Efe news reported.
APRA will build on a federal complaint laid last month by financial intelligence agency Australian Transaction Reports and Analysis Centre (AUSTRAC), which accused Westpac of violating anti-money laundering and terrorism financing laws more than 23 million times between 2013 and 2018.
AUSTRAC also alleged that the bank failed to carry out due diligence on transactions to the Philippines and Southeast Asia "that have known financial indicators relating to potential child exploitation risks".
"Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies," it added.
AUSTRAC said Westpac failed to "appropriately assess and monitor the ongoing money laundering and terrorism financing risks associated with the movement of money into and out of Australia", "report over 19.5 million International Funds Transfer Instructions (IFTIs) to AUSTRAC over nearly five years", "pass on information about the source of funds to other banks" and "keep records relating to the origin of some of these international funds transfers".
The value of the international transactions amount to more than AU$11 billion.
"Given the magnitude and nature of the issues alleged by AUSTRAC, APRA is aiming to ensure that fundamental deficiencies in Westpac's risk management framework are identified and addressed and that Westpac and those responsible are held accountable as appropriate," the regulator APRA said in a statement.
Westpac faces a fine of AU$17 million for each violation.
Two years ago, AUSTRAC had denounced Commonwealth Bank for violating the same anti-money laundering and terrorist financing laws in some 53,500 transactions between 2012 and 2015.
The Commonwealth Bank, which admitted its failure to report transactions exceeding AU$10,000 within 10 days, agreed last year to pay a penalty of AU$700 million for the violations.
( With inputs from IANS )