Westpac's chief executive Brian Hartzer will step down in the wake of allegations the bank committed 23 million breaches of Australia's anti-money laundering laws.

Key points: Mr Hartzer will depart the bank next week with a full year's $2.7 million salary, but with his unvested bonuses not paid

Mr Hartzer will depart the bank next week with a full year's $2.7 million salary, but with his unvested bonuses not paid Amongst the bank's alleged breaches is a failure to adequately monitor the accounts of a convicted child sex offender who was regularly sending money to the Philippines

Amongst the bank's alleged breaches is a failure to adequately monitor the accounts of a convicted child sex offender who was regularly sending money to the Philippines Westpac chair Lindsay Maxsted will also leave the bank in the first half of next year, while current chief financial officer Peter King takes over as acting CEO

Mr Hartzer will depart the bank on December 2, but has been given 12 months' notice and will be paid his full $2.7 million salary for the period.

However, his so-far unvested short and long-term bonuses will not be paid and he will not be eligible for any future bonuses.

Westpac was sued by the financial intelligence agency AUSTRAC, which last week applied to the Federal Court to issue fines against the bank.

Each breach could attract a civil penalty between $17 million and $21 million.

Mr Hartzer's abrupt departure follows pressure from all quarters in the wake of AUSTRAC's decision to pursue charges over the bank's deficient oversight of its anti-money laundering and terrorism financing obligations.

Brian Hartzer has been in charge of Westpac for nearly five years. ( ABC News: John Gunn )

The breaches listed by AUSTRAC included the failure to adequately monitor the accounts of a convicted child sex offender who was regularly sending money to the Philippines.

While Mr Hartzer survived an emergency board meeting on Friday, pressure from political leaders and shareholders forced the bank's hand.

Hartzer had to go to avoid AGM 'massacre'

In a statement to the ASX this morning, Westpac chairman Lindsay Maxsted said the board accepted the gravity of the issues raised by AUSTRAC.

"As was appropriate, we sought feedback from our stakeholders, including shareholders, and having done so it became clear that board and management changes were in the best interest of the bank," Mr Maxsted said.

Former Australian Competition and Consumer Commission (ACCC) chairman Allan Fels said there was a culture within banks of profits, commissions and executive incomes being put ahead of customers and the public.

Because of the allegations raised by AUSTRAC, Mr Fels said there would have been "a massacre" at the bank's annual general meeting on December 12 if Mr Hartzer had chosen to stay.

"He had to go and he had to go quickly," Mr Fels told ABC Radio Melbourne.

'Don't overcook this,' Hartzer reportedly told staff

Only this morning, Mr Hartzer had given every indication he would tough-out the crisis rapidly enveloping the bank.

He was quoted in News Corp Australia publications as telling staff the scandal was "not an Enron or Lehman Brothers", adding mainstream Australia was not overly concerned so "we don't need to overcook this".

The report also noted Mr Hartzer also apologised to senior management about the need to cancel staff Christmas parties this year as it would "not look good if we have our staff whooping it up with alcohol".

Westpac chairman Lindsay Maxsted will bring forward his retirement to the first half of 2020. ( AAP: Richard Wainwright )

Current chief financial officer Peter King will take over as CEO while the bank searches for a replacement.

Mr Maxsted also confirmed he would bring forward his retirement to the first half of 2020.

Mr Hartzer's departure continues the rout of senior bankers in the scandal-plagued Australian banking sector, with three of the "big four" losing bosses in events directly related to their bank's systemic misconduct.

CBA's Ian Narev left early last year in what he called his "early retirement" in the wake of the record $700 million fine from AUSTRAC, also over money laundering breaches.

NAB's chief executive Andrew Thorburn and chair Ken Henry exited earlier this year, just days after the banking royal commission report had been tabled.

Both men came in for a harsh rebuke with commissioner Kenneth Hayne noting he had doubts that NAB had learned from its past mistakes, and criticised Mr Thorburn's characterisation of the fees-for-no-service scandal as "nothing more than carelessness".

Only ANZ's CEO Shayne Elliott, who took over from Mike Smith in 2016, has so-far survived.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 1 minute 27 seconds 1 m 27 s Business editor Ian Verrender says most of Westpac's alleged breaches concerned child sex offences in the Philippines

Shares bounce, but big problems loom

Investors generally welcomed the Westpac's about-face on Mr Hartzer with shares rebounding 1.5 per cent this morning, having shed around 7 per cent, or $6 billion, since AUSTRAC announced the Federal Court action last week.

However, the bank is far from out of the woods in terms of a shareholder and customer backlash and now faces the prospect of class actions over its large capital raising earlier this month, as well as big corporate clients leaving.

Westpac went to shareholders earlier this month asking for an extra $2.5 billion to shore up its capital buffers, while creating flexibility for dealing for "potential litigation or regulatory actions".

Investors taking up their entitlements would now be more than 10 per cent underwater on their investment.

The scandal also could have serious implications for its customer base with the Victorian Government, one of its biggest accounts, confirming it that had written to the banks expressing grave concerns.

The Victorian Government does all its banking through Westpac. Its current contract is due to expire in September next year.

Premier Daniel Andrews said the tender process for the new contract had not yet opened, but he was concerned by the scandal.

"They are very serious matters and you would certainly hope, all Victorians I think would hope, that Westpac have taken those matters seriously,'' Mr Andrews said.

It is understood that it is hard to break that contract, but if there are formal findings made against Westpac that breach specific clauses, the Government could be in a position to terminate.

Mr Maxsted accepted the bank's actions may cost it customers.

"There may be customers who leave, but I hope … when talking to our people, they will realise our genuine remorse and mistakes made were not about deliberate neglect," Mr Maxsted told an investor and media conference call.

A 'failure of leadership', Labor says

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 52 seconds 52 s Jim Chalmers and Greg Hunt have welcomed the resignation of Westpac CEO Brian Hartzer

Shadow Treasurer Jim Chalmers said the behaviour of Westpac under Mr Hartzer was "nothing short of disgraceful" and there had been "a failure of leadership".

"Brian Hartzer had no option but to resign after the extremely serious and appalling revelations of what has gone on in Westpac over a period of some years," Mr Chalmers said.

"People need to be accountable for the behaviour of companies under their leadership.

"I think the Australian people rightly expect a high standard of their corporate leaders, they will welcome this decision today.

"But it doesn't end there, there are a whole range of steps that Westpac clearly needs to take to clear up their act."

Federal Treasurer Josh Frydenberg welcomed Mr Hartzer's departure, which he learned of prior to the announcement.

"The alleged breaches that have been levelled at Westpac are very serious, both in terms of the numbers of those alleged breaches, but also the nature of them," he said.

"I've had conversations with Westpac and ... those discussions were constructive. I made clear the seriousness of those issues, but also the bank itself and the board itself has been having many meetings - including with its own shareholders — and, in a conversation this morning with the chairman he told me, before the public announcement, of what was to take place."

Mr Frydenberg said Mr Hartzer's remuneration was a decision for the bank.

"And the board will be facing the shareholders on December 12," he said.

"These are going to be pretty difficult days, not just for the board and for the management of Westpac but, no doubt, for its thousands of employees across the company.

"But it will get through it, and it will continue to play a vitally important role in our economy."