Corporate watchdog ASIC has launched legal action against Westpac over allegations of poor financial advice given by a former adviser.

ASIC is alleging former Western Australian Westpac employee Sudhir Sinha breached the Corporations Act by failing to act in his clients' best interests, and provided inappropriate advice.

Westpac could face civil penalties, with the regulator alleging the bank is liable as Mr Sinha's former licensee.

Mr Sinha worked for Westpac in Perth from 2001 to 2014.

"ASIC contends, as Mr Sinha's responsible licensee during that period, Westpac is liable for the alleged breaches of the 'best interests' obligations by Mr Sinha," ASIC said in a statement.

The relevant section of the Corporations Act carries a civil penalty of $1 million per contravention.

Last year ASIC banned Mr Sinha from providing financial services for five years, after finding he "systematically failed" to meet his obligations over six years.

Westpac told ASIC 177 clients were charged fees but did not receive service from Mr Sinha, including at least nine clients who did not receive reviews despite paying for ongoing service.

The regulator also found Mr Sinha was not adequately trained or competent.

Westpac is currently compensating customers impacted by Mr Sinha's advice and has told ASIC it has paid approximately $12 million so far.

Westpac said it is reviewing ASIC's documents and will continue to cooperate with the regulator.

"In May 2014, Westpac identified compliance concerns with the former financial adviser," the bank said in a statement.

"Following detection, Westpac commenced an investigation, suspended Mr Sinha in September 2014 and subsequently dismissed Mr Sinha in November 2014."

Westpac's report to ASIC and the ban on Mr Sinha predate the announcement of the banking royal commission.

The financial advice arms of the big banks and AMP have come under scrutiny at the inquiry in recent months, including for charging fees for no service.