Westpac chief executive Brian Hartzer will step down on December 2, while chairman Lindsay Maxsted is bringing forward his retirement to the first half of 2020.
Westpac chief executive Brian Hartzer is stepping down and chairman Lindsay Maxsted will follow suit as Australia's second-largest bank reels from its money laundering and child exploitation scandal.
Mr Hartzer will step down next week and be replaced on an interim basis by chief financial officer Peter King, while Mr Maxsted is no longer seeking re-election at next month's AGM and will retire in "the first half of 2020".
Mr Hartzer was given 12 months' notice and will still get his $2.7 million salary, but forfeits up to $20 million in bonuses.
Westpac faces a huge fine and its reputation is in tatters after financial crime watchdog AUSTRAC accused it of 23 million breaches of money laundering laws, and failing to properly monitor payments potentially linked to the streaming of child exploitation.
"The board accepts the gravity of the issues raised by AUSTRAC," Mr Maxsted said on Tuesday.
"We sought feedback from all 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 Hartzer, who succeeded Gail Kelly as CEO in February 2015, had looked set to fight on as recently as Monday, when he reportedly held a meeting with bank executives.
But his departure was announced after The Australian newspaper reported that he told executives the public "was not overly concerned" with the scandal and urged staff to focus on selling more mortgages and improving customer service.
He also told them he was "very sorry" the bank would be forced to cancel Christmas parties to protect its image, the paper said.
"I accept that I am ultimately accountable for everything that happens at the bank," Mr Hartzer said in a statement on Tuesday.
"And it is clear that we have fallen well short of what the community expects of us, and we expect of ourselves."
Treasurer Josh Frydenberg said Westpac's alleged breaches were of the "most serious" nature welcoming the decision to hold senior leadership to account.
"The Government believes those alleged breaches against Westpac were the most serious in both nature and number and there needed to be accountability," he said.
"The people of Australia - the customers of Westpac will be looking to that company to ensure an improved performance going forward."
Mr Hartzer will forfeit 636,540 unvested share rights worth $15.56 million before Tuesday's open and - with his FY19 short-term bonus already scrapped - will also go without short-term bonuses for FY20 and FY21.
His FY18 short-term bonus was worth $1.33 million.
Westpac said Mr Maxsted's departure would allow a new chairman to oversee the appointment of Mr Hartzer's permanent successor.
Risk and compliance committee chair Ewen Crouch has also decided not to seek re-election at the December 12 AGM, when Westpac faces a possible second strike on executive pay and potential board spill.
Investment groups had urged angry shareholders to reject the lender's remuneration report, while Prime Minister Scott Morrison and Home Affairs Minister Peter Dutton have been among those calling for accountability.
The federal government and opposition has welcomed news Westpac chief executive Brian Hartzer is stepping down, as the bank battles a money laundering and child exploitation scandal.
"I think it's welcome, I think it's appropriate," cabinet minister Greg Hunt told Sky News on Tuesday.
"The prime minister was absolutely clear when these revelations came out that the board had to reflect on the leadership. Both the chairman and the CEO are leaving, and I think that's appropriate."
Mr Hunt described the allegations levelled against Westpac as "disappointing, shocking and unacceptable".
The prime minister and treasurer did stop short of calling for Mr Hartzer and Westpac chairman Lindsay Maxsted to resign.
But Mr Hunt said the politicians had sent a "clear, categorical and absolute" message to the bank.
"Whilst it was formally a matter for the board, the public expectation, the national expectation, was that responsibility should and must be taken and it has been," he said.
According to The Australian newspaper, Mr Hartzer told his executives to remain calm over the past 24 hours, arguing the scandal wasn't really having an impact in mainstream Australia.
Mr Hunt said the bank chief could not be more wrong.
"This is about the potential for serious criminal activity to have been allowed," the minister said.
"In particular, the idea that there are crimes against children, in any way shape or form, which could be treated as other than profoundly important and utterly unacceptable is to me a complete failure."
Labor also welcomed the resignation.
"The behaviour at Westpac under Brian Hartzer's leadership was nothing short of disgraceful," shadow treasurer Jim Chalmers told reporters in Canberra.
"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."