(Updates with background throughout, adds comments from...

(Updates with background throughout, adds comments from Westpac, regulator)

July 19 (Reuters) - An Australian regulator announced on Friday a reduction of A$500 million in the A$1 billion ($670.50 million) capital add-on it had imposed on Westpac (WBC) in 2019 after identifying higher operational risk in the bank's risk governance self-assessment.

In July 2019, the country's prudential regulator had asked Westpac, ANZ Group (ANZ) and National Australia Bank (NAB) to set aside an additional A$500 million each until they strengthen their risk management and reimburse customers for wrongly charged fees.

The regulator then

imposed

an additional A$500 million capital add-on on Westpac in December 2019 to reflect the bank's heightened operational risk profile, primarily due to risk governance concerns.

In mid-March, the country's prudential regulator

removed

the A$500 million imposed on NAB.

Westpac said the reduction will boost its common equity tier 1 (CET1) capital ratio by 18 basis points.

"The remaining A$500 million capital add-on will remain in place until Westpac completes its transition work," the regulator added. ($1 = 1.4914 Australian dollars)