The Auckland High Court has ordered ANZ New Zealand (ANZ) to pay a $280,000 civil penalty for breaching the Financial Markets Conduct Act 2013 (FMCA) by making misleading representations in the supply of credit card repayment insurance (CCRI) to 307 of its customers.
On 5 March 2021, Justice Muir ordered ANZ to pay a $280,000 civil penalty as recommended by the Financial Markets Authority (FMA) and the bank. Justice Muir noted the importance of deterrence in civil penalty regime, noting: “that it creates a strong incentive for financial institutions, and particularly large and well-resourced ones like trading banks, to maintain adequate processes and systems.”
ANZ previously admitted to breaching the FMCA after the FMA filed proceedings in June 2020. The Financial Markets Authority (FMA) alleged ANZ charged certain customers for CCRI policies that offered no cover or benefit. The FMA claimed that ANZ breached section 22 of the FMCA by making false and misleading representations about the cover conferred by those policies.
Justice Muir said consumers are entitled to trust the accuracy of any bank’s communications and systems, noting: “Consumers cannot be ‘confident’ in their participation [of financial markets] if they are required to double check the precise details of every transaction with their bank,” he said.
Justice Muir accepted the FMA’s submission: “that, to achieve deterrence, it will generally be appropriate for the starting point [of the penalty] to be substantially higher than the gain obtained. This ensures that penalties are set at a level where they are not seen merely as a cost of doing business and sends appropriate signals to the market in terms of the importance of compliance with the Act.”
Although inadvertent, Justice Muir accepted the contraventions were “the product of deficient processes and systems which were in place for a significant period of time and given ANZ’s size and resources and its position as one of New Zealand’s leading banks, its systems should have been sufficiently robust to detect such issues earlier.”
The Judge also said it was an error on ANZ’s part not to advise the FMA of the CCRI issue earlier, which “reflects adversely on relevant processes at the time. Proper processes would have resulted in earlier escalation…”
Karen Chang, FMA Head of Enforcement said: “We have talked consistently about the risks of consumer harm when firms fail to maintain appropriate systems to manage conduct risk. ANZ’s admissions of these breaches demonstrate the risk of court action for these conduct failures. ANZ sold a product that, for some customers, offered no benefit.
“While ANZ has embarked on their own remediation programme, and ultimately self-reported this matter, the case points to a failure of internal systems and controls resulting in customer harm over a significant period of time.”
These were the first civil proceedings the FMA has brought under the fair-dealing provisions in part 2 of the FMCA.
About the proceedings
The FMA proceedings contained two causes of action. Firstly, that ANZ issued duplicate CCRI policies to some customers, which provided no additional benefits or cover, and charged premiums on those policies, during the period April 2014 - November 2019. Secondly, ANZ issued and failed to cancel CCRI policies for ineligible customers, also charging premiums on those policies, during the period 1 April 2014 – May 2018. While the two also affect some policies sold by ANZ prior to April 2014 and hence affected some other ANZ customers, the FMA’s claim solely related to 307 policies that were subject to charges after April 2014, reflecting the date when Part 2 of the FMCA came into force.
ANZ first identified the duplicate policy issue around September 2017 and the ineligible customers issue was identified around May 2018. The FMA and the Reserve Bank of New Zealand completed a joint review of the Conduct and Culture of NZ’s retail banks from May to June 2018. All banks were asked to disclose “any work underway to remediate any identified issues where conduct by your firm has resulted in detrimental outcomes for customers.”
ANZ did not disclose either of the CCRI issues to the FMA or Reserve Bank during the Conduct and Culture review. ANZ first notified the FMA of both issues in June 2019.
Following its notification to the FMA, ANZ cooperated with the FMA’s investigation and has compensated affected customers.
The civil pecuniary penalty will first apply to paying the FMA’s costs in bringing the proceedings.
Notes
CCRI is a form of insurance which covers some or all of a customer’s outstanding credit card repayments in certain circumstances, including in the event of a customer’s bankruptcy, redundancy, injury, illness or death.
Documents
FMA – ANZ settlement agreement
