SYDNEY (Reuters) - Commonwealth Bank of Australia (CBA) CBA.AX agreed to pay a record penalty of A$700 million ($529.3 million) to settle explosive money laundering charges brought by Australia's financial intelligence agency.

The biggest financial penalty in Australian corporate history was almost double the amount CBA had set aside, signaling the tougher regulatory framework Australian banks face following revelations of widespread misconduct.

Even so, CBA shares were up 1.5 percent in afternoon trade as investors breathed a sigh of relief that authorities had not pursued much larger fines, in a case that shocked the country and triggered an executive shake-up at the bank.

It is the second major case new CEO Matt Comyn, who replaced Ian Narev in the wake of the scandal, has settled with regulators in a month after admitting to rate-manipulation allegations.

Australia’s biggest bank admitted it had breached money laundering and terror financing laws on 53,750 occasions, according to an statement of facts tendered in court by both parties.

Suspicious transactions were repeatedly not reported, and monitoring processes failed, it said.

“The money laundered through the CBA accounts included the proceeds of drug and firearms importation and distribution syndicates – predominantly involving methamphetamine,” the court document said.

CBA also failed to adequately notify the regulator of transactions linked to several customers who posed “a potential risk of terrorism or terrorism financing”.

CBA shares were up 2 percent in a slightly positive market, even though the fine was by far the biggest in Australian corporate history and almost double the A$375 million CBA had set aside to deal with the case.

FILE PHOTO: The logo for the Commonwealth Bank of Australia adorns their head office in central Sydney, Australia, October 12, 2017. REUTERS/David Gray/File Photo

Many of the breaches carried maximum penalties of up to A$21 million each, exposing CBA to fines running into the billions of dollars.

“While we had not factored in a fine above $375 million given a wide variety of potential outcomes, we note that many in the market had expected a fine as large as $1 billion,” UBS said in a note to clients.

The breaches were first revealed in August last year. CBA blamed them on a computer error but the case triggered a share selldown and a board shake-up, with Narev announcing his retirement two weeks later amid a public outcry.

“While not deliberate, we fully appreciate the seriousness of the mistakes we made,” new CEO Comyn said in a statement.

“Our agreement today is a clear acknowledgement of our failures and is an important step towards moving the bank forward.”

Australian Treasurer Scott Morrison told reporters it was now time for CBA to “get on with the job of restoring trust”.

CLEANER SLATE

As part of the settlement - which must be approved by the Federal Court - the bank acknowledged it did not take all the necessary steps to identify, mitigate and manage money laundering and terrorism financing risks.

The bank said it would book a A$700 million provision in its fiscal 2018 results, to be released in August.

Last month, CBA was ordered to carry an additional $1 billion in reserve capital until it satisfies regulators that it has improved oversight to avoid similar breaches in the future.

The bank is still facing two separate class actions by shareholders linked to losses suffered from the money-laundering breaches.

The Australian government has pledged to boost oversight of the financial sector and increase penalties for corporate crimes in light of widespread misconduct revealed by an ongoing inquiry into the country’s banks and wealth managers.

One of CBA's main rivals, Australia and New Zealand Banking Group Ltd ANZ.AX, is facing criminal cartel charges, along with underwriters Deutsche Bank and Citigroup, over a $2.3 billion share issue.