The risks of failing to comply with the relevant regulatory bodies due to oversights in the acquisition process have been laid bare by Westpac’s admission that it incorrectly classified almost $29 billion in mortgages over the past three years.

Westpac told shareholders in an ASX filing that the error was a “legacy issue” – corporate jargon meaning the mistake was the result of teething pains from the St George acquisition in 2008.

An internal review revealed that Westpac incorrectly classified $28.8 billion in mortgages over the past three years, but in this instance the bank has said that the reclassification will not have any material impact on its risk profile and that it will not need to amend its financial reports.

Since November 2008, the bank had recorded some home loans as belonging to owner-occupiers rather than being for investment purposes. The mix-up occurred in cases whereby a borrower paid down their owner-occupied mortgages and used that equity to buy investment properties.

When the misclassification was discovered, Westpac alerted the Australian Prudential Regulation Authority (APRA).

A Westpac spokesperson told The Australian newspaper that, while the bank’s decision makers were disappointed that they had to make some changes, the risk relates to the individual and not the property:

“The real risk in the mortgage is whether people can continue to pay or not. We lend based on people's capacity to repay."