FINANCIAL MARKETS AUTHORITY v ANZ BANK NEW ZEALAND LIMITED [2021] NZHC 399

FINANCIAL MARKETS AUTHORITY v ANZ BANK NEW ZEALAND LIMITED [2021] NZHC 399 [5March 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-000819[2021] NZHC 399UNDER The Financial Markets Conduct Act 2013BETWEEN FINANCIAL MARKETS AUTHORITYPlaintiffAND ANZ BANK NEW ZEALAND LIMITEDDefendantHearing: 12 February 2021Counsel: N F Flanagan and A D Luck for the PlaintiffA Horne and A Payne for the DefendantJudgment: 5 March 2021JUDGMENT OF MUIR JThis judgment was delivered by me on 5 March 2021 at 4.00 pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate:.Solicitors:Meredith Connell, AucklandMinter Ellison Rudd Watts, AucklandIntroduction[1] On 4 June 2020 the Financial Markets Authority ("FMA") filed civilproceedings against ANZ Bank New Zealand Limited ("ANZ") alleging variousbreaches of the Financial Markets Conduct Act 2013 ("the Act").[2] In its Admission of Causes of Action and Facts dated 2 September 2020 ANZadmitted the relevant causes of action.[3] The Court is now asked to impose an appropriate penalty. After extensive and,in my view, responsible discussions, the parties agreed that this should be $280,000,acknowledging, however, that the amount of any pecuniary penalty is ultimately amatter for the Court.[4] I am satisfied that the proposed penalty is appropriate. My reasons follow.Background[5] The background to this claim may be stated relatively briefly.[6] ANZ issues and manages consumer credit cards in the course of its business.[7] Between 1991 and September 2019 it offered credit card repayment insurance("CCRI") policies to customers holding credit cards. CCRI policies are a form ofinsurance which cover some or all of a customer's outstanding credit card repaymentsin certain circumstances, for example, in the event of the customer's bankruptcy,redundancy, injury, illness or death.[8] ANZ received a commission for providing information on prospectivecustomers to insurers who would then sell CCRI policies to those customers. UntilMay 2016, ANZ also sold CCRI policies directly.[9] At all relevant times, ANZ issued monthly credit card statements to itscustomers. These statements included the customer's outstanding credit card balanceand any premiums ANZ represented were owing in respect of the CCRI policies soldto that customer. These premiums were determined as a percentage of the amountowing on the last date of the statement period.[10] Between 2017 and 2018 ANZ identified two problems with its CCRIofferings—duplicate policies and ineligible customers. The issues affectedapproximately 0.3 per cent of relevant CCRI policyholders. I will address eachproblem in turn.Duplicate policies issue[11] From approximately December 1998, ANZ issued some customers alreadyholding an existing CCRI policy with one or more additional policies ("DuplicatePolicies"). It did so due to deficiencies in its sales and fulfilment systems and errorsin its computer systems. The Duplicate Policies did not provide any additionalbenefits beyond those conferred by the customers' existing policies.[12] In the period since commencement of the Act (1 April 2014):(a) ANZ issued 186 customers with Duplicate Policies;(b) ANZ charged a total of $176,769.57 (including premiums, fees andinterest) on such policies; and(c) ANZ received a total of $20,458.43 in relevant commissions.[13] The issue persisted until 23 August 2019, by which time ANZ had cancelledall of the Duplicate Policies then in force.Ineligible customers issue[14] Between 1997 and 1 May 2018, customers were not eligible to hold someCCRI policies if they were aged over 65 or 75 years old, depending on the policy("Ineligible Customers").[15] During that time, ANZ issued CCRI policies to some customers who exceededthe maximum age of eligibility. ANZ also failed to cancel the CCRI policies held bysome customers who exceeded this maximum and it continued to collect premiums onthose policies. The CCRI policies conferred no rights or benefits on IneligibleCustomers, albeit that none were declined on age eligibility grounds.[16] Again taking the position as from 1 April 2014:(a) 121 Ineligible Customers held, or were issued with, CCRI policies;(b) ANZ invoiced Ineligible Customers a total of $22,351.19 (includingpremiums, fees and interest) on such policies; and(c) ANZ received a total of $337.42 in relevant commissions.[17] From 1 May 2018, all of ANZ's CCRI policies were available to customers upto 99 years of age.ANZ's response to the issues[18] ANZ became aware that some customers may have been or were affected by:(a) the Duplicate Policy issue, in or around September 2017; and(b) the Ineligible Customers issue, in or around May 2018.[19] In April 2018, the FMA and the Reserve Bank of New Zealand ("RBNZ")launched a joint review into the conduct and culture of 11 New Zealand retail banksincluding ANZ.[20] Between 3 May 2018 and 21 June 2018, ANZ engaged in correspondence withthe FMA and the RBNZ in relation to that review. However, although ANZ hadidentified both the Duplicate Policy issue and the Ineligible Customers issue by May2018, it did not disclose those issues to the FMA/RBNZ. This was despite specificrequests from those bodies that ANZ provide information on "any work underway toremediate any identified issues where bank conduct has resulted in detrimentaloutcomes for customers". The FMA accepts, however, that this was not on account ofany wilful decision on ANZ's part to withhold the information from the Regulators butrather as a result of inadequacies in its systems whereby the issue was notappropriately escalated to ANZ's Remediation Governance Forum ("RGF"), whichwas dealing with the FMA at the time, and the RGF's failure to interrogate adequatelyall relevant aspects of the bank's operation.[21] By contrast, ANZ did advise the insurer for the majority of its CCRI Policies(Cigna Life Insurance New Zealand Limited) of:1(a) the Duplicate Policy issue on or around 10 May 2018; and(b) the Ineligible Customers issue on or around 24 May 2018.[22] ANZ ultimately reported these issues to the FMA on 27 and 28 June 2019 bywhich time it says it had identified the extent of the problems and was well advancedin its assessment of how they could be appropriately and fairly remediated (a positioncomplicated by the fact that a proportion of those affected carried ongoing debitbalances on their credit cards with the result that inappropriately charged premiumsthemselves attracted interest at credit card rates—I accept that in this context therewas likely to be significant complexity in the calculation of relevant compensation).[23] ANZ has since taken steps to contact and reimburse customers affected bythese issues. Where customer identification has been possible (approximately 98 percent of those affected) it has reimbursed all charges paid for duplicate or ineligibleCCRI policies, including premiums, fees and interest. In the case of customers whohabitually paid the full sum outstanding on their cards on the due date, it has refundedpremiums and paid use-of-money interest. In the case of the very small number ofcustomers it has been unable to locate (7 of 307 or approximately 2 per cent) it intendsto pay the relevant sums to Inland Revenue as unclaimed monies.1 ANZ's CCRI Policies have been underwritten by various insurers at various times. Since at least2001, the insurer for the majority of ANZ's CCRI Policies was Cigna Life Insurance New ZealandLimited.The current application[24] In its claim the FMA alleged various breaches of s 22(d) and/or (h) of the Actin respect of the Duplicate Policies issue, and s 22(a) and/or (h) in respect of theIneligible Customers issue.[25] Section 22 of the Act provides:A person must not, in trade, in connection with any dealing in financialproducts, the supply or possible supply of financial services, or the promotionby any means of the supply or use of financial services, make a false ormisleading representation—(a) that the products or services are of a particular kind, standard, quality,grade, quantity, composition, or value, or have had a particularhistory; or(d) that the products or services have any sponsorship, approval,endorsement, performance characteristics, accessories, uses, orbenefits; or(h) concerning the existence, exclusion, or effect of any condition,warranty, guarantee, right, or remedy, including (to avoid doubt) inrelation to any guarantee, right, or remedy available under theConsumer Guarantees Act 1993; or [26] In particular, the FMA alleges that by issuing statements to customers affectedby the Duplicate Policy issue, ANZ made false and/or misleading representations that:(a) the Duplicate Policies conferred additional benefits beyond thosealready conferred by the customer's existing CCRI Policy, in breach ofs 22(d) of the Act; and(b) it was entitled to charge the premiums that appeared on the statementsin breach of s 22(h) of the Act.[27] Likewise, the FMA alleges that by issuing statements to those affected by theIneligible Customers issue ANZ made false and/or misleading representations that:(a) the Policy charged for was a valid and enforceable CCRI Policy inrespect of the Ineligible Customer, in breach of s 22(a) of the Act;and/or(b) it was entitled to charge the premiums that appeared on the statementsin breach of s 22(h) of the Act.[28] ANZ admits these breaches. It also accepts:(a) that the FMA is entitled to a declaration that ANZ contravened s 22(d)and/or (h) of the Act by issuing statements to customers affected by theDuplicate Policy issue; and(b) that the FMA is entitled to a declaration that ANZ contravened s 22(a)and/or (h) of the Act by issuing statements to those affected by theIneligible Customers issue.[29] The parties have also agreed that a pecuniary penalty of $280,000.00 shouldbe imposed on ANZ. They now seek the Court's approval of that penalty.General approach to recommended penalties[30] The quantum of any pecuniary penalty to be imposed is a matter for the Court.However, the Court is mindful of the significant public interest in bringing about theprompt and efficient resolution of penalty proceedings. In Commerce Commission vAlstom Holdings SA, Rodney Hansen J stated:2Finally, in discussing the general approach to fixing penalty, I acknowledgethe submission that the task of the Court in cases where penalty has beenagreed between the parties is not to embark on its own enquiry of what wouldbe an appropriate figure but to consider whether the proposed penalty is withinthe proper range – see the judgment of the Full Federal Court in NW FrozenFoods v ACCC (1996) 71 FCR 285. As noted by the Court in that case and byWilliams J in Commerce Commission v Koppers, there is a significant publicbenefit when corporations acknowledge wrongdoing, thereby avoiding time-consuming and costly investigation and litigation. The Court should play itspart in promoting such resolutions by accepting a penalty within the proposedrange. A defendant should not be deterred from a negotiated resolution by2 Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC) at [18].fears that a settlement will be rejected on insubstantial grounds or because theproposed penalty does not precisely coincide with the penalty the Court mighthave imposed.[31] Similarly, in Commerce Commission v Kuehne + Nagel International AGVenning J said:3 as has been confirmed by the full Court in Commerce Commission v NZMilk Corporation Ltd and adopted in a number of subsequent cases, there canbe no objection to a joint view of the parties on submissions as to penalty. Noris there any issue with the view being reached as a result of negotiations sothat it represents what could be described as a settlement. Such settlementsare in the interests of the parties, the community and the judicial systemenabling as they do early disposal of the proceedings. They also encourage arealistic view of the culpability and penalty and avoid the need for a fullhearing with the attendant costs associated with such a hearing.[32] While agreed penalty proposals have significant public benefit, the Court muststill be satisfied that the proposed final figure satisfies the objectives of the Act andreflects the particular circumstances of the case before it. In that context, it is the finalamount that matters; the Court need not accept each step of the methodology proposed,so long as it is satisfied that the recommended penalty is in an appropriate range.4The penalty regime under the Act[33] The FMA was established in response to the global financial crisis of2007– 2008 which substantially undermined public confidence in financial markets.5The Act was enacted shortly afterwards in an attempt to consolidate and reform thelaw while protecting the interests of those who dealt in such markets. Its mainpurposes are to—6(a) promote the confident and informed participation of businesses,investors, and consumers in the financial markets; and(b) promote and facilitate the development of fair, efficient, andtransparent financial markets.3 Commerce Commission v Kuehne + Nagel International AG [2014] NZHC 705 at [21] (citationsomitted) referring to Commerce Commission v New Zealand Milk Corporation Ltd [1994] 2 NZLR730 (HC) at 733.4 Commerce Commission v Air New Zealand Ltd [2013] NZHC 1414 at [27].5 Financial Markets Authority Act 2011, s 6.6 Financial Markets Conduct Act 2013, s 3.[34] Additionally, it is intended to:7 provide for timely, accurate, and understandable information to be providedto persons to assist those persons to make decisions relating to financialproducts or the provision of financial services:[35] To that end, the Act introduced a range of "fair dealing" provisions includings 22. Many of these are modelled on the unfair conduct provisions in Part 1 of the FairTrading Act 1986 ("FTA").8 Under s 489 of the Act, the FMA can, where a person hasbreached a civil liability provision such as s 22, apply for a pecuniary penalty order.That is precisely what the FMA did in this case.[36] Counsel advises that this is the first penalty application to be heard under theAct. I will resist any resultant temptation to lay down a broad framework for thepurpose of future cases because, on the submissions before me, there is in fact muchcommonality between the parties and, in those few areas where differences do occur,the practical implications in terms of the penalty mutually advanced for the Court'sapproval are nil.[37] I accept at the outset, however, that there is no reason to consider that thegeneral approach to setting penalties under the Act should be any different to thatunder its predecessor the Securities Markets Act 1988, in which context this Court hasheld that the principles applicable to imposition of penalty under the Commerce Act1986 are, in turn, engaged.9 So, the Court should first determine the maximum penalty,secondly set a starting point having regard to the relevant statutory criteria and thirdlyadjust that starting point by applying an uplift or a discount on the basis ofcircumstances personal to the individual defendant.107 Section 4(a).8 The wording of s 22 of the Financial Markets Conduct Act in particular is very similar to s 13 ofthe Fair Trading Act 1986, notwithstanding that s 22 concerns financial products and financialservices whereas s 13 is directed at goods and services generally.9 See Financial Markets Authority v Warminger [2017] NZHC 1471 at [13]; and Financial MarketsAuthority v Henry [2014] NZHC 1853 at [34].10 As such the approach is broadly reflective of that applicable to criminal sentencing. In Departmentof Internal Affairs v Ping An Finance (Group) New Zealand Co Ltd [2017] NZHC 2363, [2018] 2NZLR 552 at [90], Toogood J recognised that this analogy has its limitations, particularly inrespect of penalties for "a number of different types of civil liability act[s]" where the totalityprinciples adopted in the criminal law cannot be "easily adopt[ed]. However, despite theselimitations, the approach remains well supported in the authorities and in my view useful.[38] I consider each stage in turn.Stage one: the maximum penalty[39] ANZ has admitted to breaching:(a) section 22(d) and/or (h) by issuing statements to customers affected bythe Duplicate Policy issue; and(b) section 22(a) and/or (h) by issuing statements to those affected by theIneligible Customers issue.[40] Sections 38(2) and 490 of the Act provide that the maximum amount of apecuniary penalty for a breach of s 22 by a body corporate will be the greatest of:(a) the consideration for the relevant transaction;(b) if it can be readily ascertained, three times the amount of the gain made,or the loss avoided, by the person who contravened the civil liabilityprovision; or(c) $5 million.[41] In the present case, the "consideration for the relevant transactions" was justunder $200,000.00 for both issues, a relatively small proportion of which(approximately 10 per cent) represented the gain to ANZ in premiums andcommissions. The applicable maximum penalty per breach is therefore$5,000,000.00.[42] The FMA submits, and I agree, that the two breaches occurred oversubstantially the same period of time and resulted from similar deficiencies in ANZ'sprocesses and systems and that, for this reason, although the notional maximumpenalty for the two breaches might be $10 million, the starting point shouldrealistically be assessed against the maximum penalty for a single breach.Stage two: fixing a starting point[43] Under this stage, the Court will fix a starting point having regard to the relevantstatutory criteria. Section 492 provides that the Court must have regard to "all relevantmatters", including:11(a) the purposes stated in sections 3 and 4 and any other purpose stated inthis Act that applies to the civil liability provision; and(b) the nature and extent of the contravention or involvement in thecontravention; and(c) the nature and extent of any loss or damage suffered by any person,or gains made or losses avoided by the person in contravention or whowas involved in the contravention, because of the contravention orinvolvement in the contravention; and(d) whether or not a person has paid an amount of compensation,reparation, or restitution, or taken other steps to avoid or mitigate anyactual or potential adverse effects of the contravention; and(e) the circumstances in which the contravention, or involvement in thecontravention, took place; and(f) whether or not the person in contravention, or who was involved inthe contravention, has previously been found by the court inproceedings under this Act, or any other enactment, to have engagedin any similar conduct; and(g) in the case of section 534 (directors treated as having contravened),the circumstances connected with the director's appointment (forexample, whether the director is a non-executive or an independentdirector); and(h) the relationship of the parties to the transaction constituting thecontravention.[44] This section largely adopts the penalty considerations (again non-exclusive)identified in s 42Y of the Securities Markets Act. For ANZ, Mr Horne's writtensubmissions note the omission from s 492 of the s 42Y reference to "the likelihood,nature, and extent of any damage to the integrity or reputation of any of New Zealand'ssecurities markets because of the contravention". He suggests this detracts from theFMA's submission that deterrence "must be a relevant consideration" in setting apenalty under s 492. In oral argument the position of the parties became closerhowever. For the FMA, Mr Flanagan pointed out that the list of relevant factors in11 Section 492.s 492 included the "purposes of the Act" and that one of the primary purposesidentified in s 3 is "promot[ing] the confident and informed participation ofbusinesses, investors, and consumers in the financial markets". He submitted that,materially, this captured the same concept as potential "damage to the integrity orreputation" of the relevant market. Mr Horne did not demur and I agree.[45] In the context of pecuniary penalties, deterrence will always be a relevantconsideration. It may, as Toogood J observed in Department of Internal Affairs v PingAn Finance (Group) New Zealand Co Ltd, in fact be "the overriding objective", unlikethe position in the criminal law where it is only one of the relevant principles andpurposes of sentencing.12 Such deterrence may be both specific to the defendant ormore general, in the sense that it creates a strong incentive for financial institutions,and particularly large and well-resourced ones like trading banks, to maintain adequateprocesses and systems. Regimes such as that imposed by the Act must be consideredto be premised on the assumption that the penal consequences of deficiencies in suchsystems should significantly incentivise improvement. To this extent, deterrence sitspermanently within the Court's penalty framework. But that does not mean to say, asthe FMA acknowledges, that heavy deterrent penalties are in every case warranted.Each case will be fact specific.Section 429(a): the purposes of the Act[46] Both parties agree that one of the central purposes of the Act is to promote theconfident and informed participation of consumers in financial markets.13[47] ANZ submits that, because it did not misdescribe the products, but merelymisled customers by charging them for products which provided no benefit to them,their conduct is unlikely materially to undermine confidence in financial markets. Itfurther submits that its customers were only partially uninformed, as those affected bythe Duplicate Policy issue could have seen from their credit card statements that theywere being charged for two premiums, and those affected by the Ineligible Customers12 Ping, above n 10, at [92].13 Financial Markets Conduct Act, s 3(a).issue could have identified the maximum age of eligibility by reading the terms of thepolicies.[48] I do not find these arguments particularly persuasive. ANZ has admittedissuing CCRI policies to some customers who exceeded eligibility requirements forthose policies. That necessarily involves some element of misdescription. Had ANZaccurately described the eligibility requirements, the customers would, undoubtedly,not have agreed to purchase the policies.[49] Moreover, a central purpose of the Act is to promote the "confident andinformed participation" of consumers in financial markets.14 Consumers cannot be"confident" in their participation if they are required to doublecheck the precise detailsof every transaction with their bank. They are entitled to trust in the accuracy of anybank's communications and in its systems. The fact that a vigilant consumer couldhave identified the problem earlier does not in my view materially mitigate culpability.So could have a more vigilant ANZ .[50] In my view this is precisely the sort of conduct which does undermineconfidence in financial markets and the purposes of the Act.Section 429(b): the nature and extent of the contravention[51] The FMA suggest that the conduct spans a significant period of time andaffected several hundred customers with the Duplicate Policies issue persisting forclose to five and a half years after the commencement of s 22 and the IneligibleCustomers issue persisting for over four years. It says the duration of the breaches isa significant aggravating factor in that it indicates a persistence of inadequateinvestment and resources into identifying such issues.[52] ANZ says that the problem existed for the time it did simply because it was notdiscovered earlier which was likely the result of the very small proportion of policyholders who were affected. It says that it put in place systems which were believed tobe effective and were so for the overwhelming majority of its CCRI policy holders.14 Section 3(a).[53] As such, the respective arguments dovetail with the positions taken by theparties on the extent to which—by virtue of the incentive it creates to implement bettersystems—a general deterrent sentence is appropriate. I will consider the issue morefully in that context.Section 492(c): the nature and extent of any loss or damage[54] ANZ accepts that it charged affected customers a total of $199,120.76 as aresult of its errors, including premiums, interest and fees. That sum represents anaverage overcharge of $648.60 per customer. I accept that is a substantial amount.However, s 492(c) also engages the concept of "gains made or losses avoided by theperson in contravention". The "gains" made by ANZ were small, totalling $20,587.26for the relevant commissions.[55] I accept the FMA's submission that, to achieve deterrence, it will generally beappropriate for the starting point to be substantially higher than the gain obtained. Thisensures that penalties are set at a level where they are not seen merely as a cost ofdoing business and sends appropriate signals to the market in terms of the importanceof compliance with the Act. Again I revert to this issue in my discussion concerningdeterrence.[56] In terms of the loss sustained by customers, I take into account that no claimswere declined on account of the Ineligible Policies issue, albeit ANZ's conductexposed affected customers to that risk.Section 492(d): whether or not compensation has been paid[57] The FMA acknowledges that ANZ has refunded the premiums paid by 300 of307 affected customers, compensated for interest charged at credit card rates whereappropriate, paid use of money interest where otherwise appropriate and has actedgenerally as a responsible Corporate should on identification of such a problem.However, it says there was significant delay in doing so after the matter first came toits attention. ANZ resists that proposition, emphasising the complexities involved inidentifying precisely which accounts were affected, the duration of the problem in eachcase and the very significant difficulties in accurately quantifying interest entitlementsfor credit card holders who periodically or permanently carried ongoing debit balanceson their cards.[58] I am prepared to accept that this was a complex process. It would in my viewhave been preferable for ANZ, having identified those customers affected, to havenotified them that a problem existed, albeit also advising that exact quantification oflosses may take some further time to complete. I do not, however, consider that thisconclusion impacts materially on the penalty appropriately imposed. Overall, myassessment is that ANZ is entitled to substantial credit for what has been fullcompensation effected with reasonable timeliness in all the circumstances.Section 492(e): the circumstances in which the contravention took place[59] The FMA says that, although inadvertent, the contraventions were the productof deficient processes and systems which were in place for a significant period of time.It says that given ANZ's size and resources and its position as one of New Zealand'sleading banks, its systems should have been sufficiently robust to detect such issuesearlier. That position is, in my view, essentially unarguable and I will return to it whenI discuss the extent to which deterrence is relevant to penalty in this case. However,in my view the inadequate resources and systems submission needs also to take intoaccount the fact that the number of customers affected as a percentage of those holdingCCRI policies was extremely small which has implications both in terms of:(a) how likely the problem was to be identified earlier; and(b) how, in respect of the overwhelming majority of cases, ANZ's systemsproved sufficiently robust.Section 492(f): similar contravening conduct[60] The FMA submits that although ANZ has not previously breached the Act, ithas been held liable for four breaches of the FTA between 1996 and 2015. It concedesthat these breaches arose out of ANZ's marketing practices rather than deficiencies inits operational systems and processes but says that, notwithstanding this, the Courtmay take into account the fact that ANZ has some history of failing to ensure theaccuracy of information provided to its customers.[61] ANZ points out that the most recent of these cases was determined by the Courtsix years ago, that the other examples are all more than 15 years old and that oneoccurred 25 years ago. It emphasises the very different nature of the breaches.[62] I agree with ANZ that this is not a materially aggravating feature. The FMAdoes not contend otherwise.Section 492(h): the relationship of the parties to the transaction[63] The FMA says that ANZ's customers were entitled to trust their bank to dobetter and that its conduct breached that trust.[64] The relevant relationship was that of banker and customer with the gloss thatANZ, to the extent relevant, was arranging insurance policies for its credit cardproducts rather than providing traditional banking services. I accept ANZ'ssubmission that it was not acting as a trustee or fiduciary in the orthodox sense but nordo I consider the FMA's submission so premised. Bank customers should be able to"trust" (in the general sense) the robustness of bank systems. ANZ let them down.This goes to the very heart of the legislative purpose.Other relevant considerations[65] The FMA identifies two other relevant considerations in addition to thoseidentified in s 492. I discuss these below:(1) ANZ's knowledge of the breaches and the circumstances of its self-report[66] The FMA identifies as a significant aggravating feature the fact that ANZ wasaware of the issues for over a year before reporting them to the FMA (and close to twoyears in the case of the Duplicate Policies issue). It notes that ANZ advised the insurerof the majority of the affected accounts over a year before it advised the FMA and thatthe issue had been identified (albeit not escalated to the RGF) at the time of the FMA'sconduct and culture review. It emphasises that in the context of that review the FMAmade two requests of ANZ to disclose any issues of which it was aware that may havecaused harm to customers and the Duplicate Policy and Ineligible Policy issues werenot so identified. It acknowledges that there was no deliberate intention to conceal onthe part of ANZ but says again, the circumstances indicate a systems or process failure.[67] ANZ says that at the time of the conduct and culture review the matter was stillunder investigation and had not yet been identified as meeting the requirements to bereferred to the RGF. It says that its staff considered they needed time to determinewhether the issues merited escalation because of their complexity and the difficulty inidentifying which customers were affected and how much to reimburse them. Thatwas an error on their part and reflects adversely on relevant processes at the time.Proper processes would have resulted in earlier escalation and advice by the RGF tothe FMA that there was a problem, albeit that its size and scope and the quantificationof the compensation to be paid may take some time to finalise.[68] However, I take into account ANZ's work with the Regulator in 2020 to refineand improve its self-reporting mechanisms. ANZ now claims to have attained, or beclose to, industry leading standards. The FMA acknowledges the work that has beendone in this respect.[69] Overall, I accept the delay in self-reporting as an aggravating feature of thebreaches, particularly given one of the stated additional purposes of the Act is to ensurethat "appropriate governance arrangements apply", "that allow for effectivemonitoring" (which must include by the Regulator).15 However, it is in part mitigatedby ANZ's constructive engagement with the Regulator since.(2) Deterrence[70] I have previously discussed the role of deterrence in sentencing under the Actconcluding that the position will necessarily be case and fact specific.[71] In the present case, for example, the FMA acknowledges that there is noquestion of ANZ's default having arisen deliberately or of it electing to sustain its15 Section 4(b).position beyond identification of the problem. It also acknowledges ANZ'sresponsible approach to reimbursement, its self-report to the Regulator (albeit it saysbelated) and the changes which ANZ has implemented to its systems which will infuture see any similar issues escalated faster. As such, specific deterrence is not, theFMA acknowledges, a significantly animating feature in this penalty assessment.[72] So far as general deterrence is concerned, I accept ANZ's submission thatalthough the principle is engaged, the very small number of affected accounts (0.3 percent of CCRI customers) does not indicate substantially inadequate systems or ageneral tendency to underinvest, nor an organisation whose conduct was premised onthe assumption that it could safely cut corners confident that any penalty would be ata level acceptable as a "cost of business".[73] That said, neither is this a case where, for example, some material advance intechnology has enabled ANZ to interrogate its systems in 2017/2018 in a way it wasunable to do so beforehand. To some extent the problems were "hiding in plain view"and were as easily identifiable in 2007 as they were 10 years later. ANZ simply wasnot looking or looking adequately in the right places. That is a process or systemsfailure and as such general deterrence is a relevant consideration.[74] However, I agree with the FMA's submission that, from a general deterrenceperspective, the case falls at the lower end of the range. At the parties' jointly recordedstarting point of $400,000 the proposed penalty represents a multiple of approximately20 times the profit derived from the problem policies over the relevant period. On allthe facts before me, I consider this adequately captures general deterrence to the extentrelevant.[75] I take into account also the inherent deterrent effect on any major financialinstitution of the negative publicity necessarily associated with any such proceedings.Cumulatively, what do these factors suggest the starting point should be?[76] The FMA submits an appropriate starting point is in the range of$400,000– $500,000. It says that a penalty in that range:(a) would situate the offending at approximately 10 per cent of themaximum for a single breach, which appropriately reflects the balanceof aggravating features present in the case;(b) would reflect ANZ's significant size and resources and itsorganisational culpability in failing to report the issues to the FMA foran extended period of time;(c) is a sufficiently large sentence to serve as an effective deterrent to alarge corporate entity such as ANZ and to encourage other such entitiesto invest in compliance; and(d) appropriately reflects the extent of the harm caused to ANZ's customers(representing 2 times to 2.5 times the amounts charged during therelevant period).[77] In advancing that submission it references three recent District Court casesunder the FTA involving telecommunications companies whose customers hadterminated their accounts.16 In each of these cases, the representations were to theeffect that the customer was obliged to pay for a full month's worth of services. Inreality, because services terminated part-way through the month, adjustments werenecessary.[78] I agree that these cases are usefully considered in the present context. Theyeach emphasise the importance of major corporates having proper systems in place toprevent such problems from occurring which, for the reasons I have indicated, is anequally relevant consideration in this case. However, in the telecommunications casesthe problems were substantially more widespread. In Spark's case 72,163 customerswere affected. In Vodafone's case, 29,425 customers and in the CallPlus case, 5,95116 See Commerce Commission v Spark New Zealand Trading Ltd [2019] NZDC 7801 (72,163customers were overcharged by approximately $6.6 million over a period of three and a half years,global starting point of $900,000 penalty on all charges); Commerce Commission v Vodafone NewZealand Ltd [2019] NZDC 15705 (29,425 customers were overcharged by approximately$285,000, starting point of $450,000 adopted); and Commerce Commission v CallPlus ServicesLtd [2020] NZDC 2655 (5,951 customers were overcharged by approximately $132,000 over sixyears, global starting point of $180,000 adopted).customers. The opportunities for intermediate identification of the problem (in fact,recognised for some time by some of the companies' front line staff), were thussignificantly greater than in the present case where so few of the relevant customerswere affected.[79] The FMA also refers by analogy to penalties under the Anti-Money Launderingand Countering Financing of Terrorism Act 2009. In the first of those cases, Ping,Toogood J considered a report of the Law Commission in 2014 which identified thatthe purpose of pecuniary penalties was both "deterrent and denunciatory" given thattheir effect is to "single out a person or entity as having breached the law" and to"inflict a negative consequence".17[80] In Ping and subsequent cases,18 the Courts have imposed penalties at:(a) between 50 and 70 per cent of the available maximum for conductinvolving:(i) "serious, systemic deficiencies in complying with a multiplicityof obligations under the Act" in circumstances showing adisregard of the Act's requirements.19(ii) long-term noncompliance with the Act, despite prior oversightand warnings from the Department of Internal Affairs anddespite the company having had ample evidence that thetransactions' processed were suspicious.20(iii) "brazen" contraventions of the enhanced due diligencerequirements occurring across a significant volume oftransactions.2117 Law Commission Pecuniary Penalties: Guidance for Legislative Design (NZLC R133, 2014) at[4.17] as cited in Ping, above n 10, at [93].18 Department of Internal Affairs v Jin Yuan Finance Ltd [2019] NZHC 2510; Department of InternalAffairs v OTT Trading Group Ltd & Ors [2020] NZHC 1663; and Department of Internal Affairsv Qian Duoduo Ltd [2018] NZHC 1887.19 Ping, above n 10, at [6].20 See Jin Yuan Finance, above n 18, at [40]–[45].21 See OTT Trading Group, above n 18, at [70], [105] and [108].(b) between 25 and 33 per cent of the available maximum for conductinvolving significant contraventions, but in circumstances whichsuggested that a defendant had made at least some attempt to complywith their obligations;22 and(c) between 6 and 11 per cent of the available maximum for conductinvolving inadvertent breaches by a company which was unaware thatit was substantially noncompliant.23[81] The FMA acknowledges that ANZ's conduct would, by analogy, fall within thethird of these categories and notes that its proposed starting point of $400,000 to$500,000 sits towards the upper end of that band consistent with the expectation thatorganisations of ANZ's size and resources will comply with their legal obligations.[82] Finally, the FMA refers to relevant Australian case law and in particular therecent decision of Australian Securities and Investments Commission vCommonwealth Bank of Australia.24 In that case, the Commonwealth Bank ofAustralia admitted to having sold financial services to farmers which it could notguarantee it could provide. It did so on account of deficiencies in its systems. Therelevant conduct covered a period of 21 months, affected 6,953 customers and resultedin a gain to the bank of $1.7 million. The bank was fined $5 million for the breach (orroughly equivalent to three times the amount gained net of all mitigating factors).25[83] In imposing that penalty, the Federal Court held that:(a) a deterrent penalty was warranted given that the bank was a "substantialAustralian bank with not insignificant financial resources" which failedto provide the services promised "for a protracted period";2622 At [73].23 See Qian Duoduo, above n 18, at [65] and [167].24 Australian Securities and Investments Commission v Commonwealth Bank of Australia [2020]FCA 790.25 At [148].26 At [81].(b) the penalty was intended to be set at a level that achieved generaldeterrence, as it would act as a "disincentive for large financialinstitutions to fail to maintain adequate processes and systems";27 and(c) in the bank's favour, it had taken "timely and thorough" steps once ithad identified the problem and had brought the Regulator "into the loopat the earliest opportunity".28[84] For ANZ, Mr Horne submits that an appropriate starting point should be in therange of $300,000 to $400,000. He acknowledges that the maximum penalty formisleading conduct under the FMA for the purposes of the present case is $5 millionwhich is over eight times higher than that applying under the FTA.29 He acknowledgesalso that this is an indication that Parliament treats misleading representations inrelation to financial services as potentially more serious than general conduct in tradeand says that, for this reason, ANZ accepts the starting point for penalties under theAct should be above the starting points for broadly similar breaches of the FTA. But,he says, the existence of a higher maximum penalty carries with it no necessaryimplication that in every case high penalties must be imposed. The circumstances ofeach case will ultimately be relevant. That submission has to be correct.[85] Although I consider the range proposed by the FMA as ultimately moreappropriate than that proposed by ANZ, the position is largely academic for the factthat both alight ultimately on the figure of $400,000 as the starting point which thisCourt should adopt. For the reasons explained above I consider that to be appropriate.It has a significant deterrent effect being essentially 20 times the gain made, fairlyrecognises the number of persons affected, fairly acknowledges ANZ's responsibleand largely successful efforts to remediate the errors and likewise its proactive stepsto improve its early reporting processes. I am mindful of previous decisionsrecognising that this Court should play its part in promoting the resolution of thesetypes of claims by accepting penalties within the proposed range. As indicated, that27 At [82].28 At [119].29 See Fair Trading Act, s 40(1) where a maximum penalty of $600,000 may be imposed in respectof companies and $200,000 in respect of individuals. The Fair Trading Act also has a lower tierfor contraventions of Parts 2 or 4A ($30,000 for Bodies Corporate and $10,000 for individuals).is always subject to the Court being satisfied that the joint recommendation fairlyreflects relevant principles and the defendant's culpability. For the reasons indicated,I am satisfied that such is the case here. I accordingly accept $400,000 as anappropriate starting point in the assessment of penalty.Stage three: adjustments to the starting point[86] There are no factors specific to the "offender" which would warrant an increaseto this starting point. The FMA acknowledges that ANZ's previous breaches of theFTA do not so qualify. I agree. By the same token, ANZ does not claim any particularcredit on account of this being the first occasion on which it has breached the Act. Itapproaches the case, as does the FMA, on the basis that prior history is a "neutral"factor. This is a responsible position on the part of both parties.[87] As to discounts, the FMA acknowledges that ANZ engaged constructively withthe FMA regarding the terms of admissions, voluntarily supplied a significant amountof information to the FMA both before and after the claim was filed and quickly andcandidly admitted the breaches. It submits that, against this background, ANZ isentitled to the maximum possible discount for steps taken following its self-report. Byanalogy with cases under the Commerce Act 1987,30 a discount of 30 per cent wouldbe justified.31 ANZ agrees with this assessment and so do I.[88] In the result, both parties recommend a final penalty of $280,000 which Iaccept as being within the proper range.[89] I note also ANZ's consent to relevant declarations.Result[90] I make declarations that ANZ:30 See Commerce Commission v Barfoot & Thompson Ltd [2016] NZHC 3111 at [39]; CommerceCommission v Property Brokers Ltd [2016] NZHC 2851 at [15]; and Commerce Commission vUnique Realty Ltd [2016] NZHC 1064 at [46].31 In other claims by the Commerce Commission against real estate agents greater discounts wereawarded but this was in response to offers to provide evidence against other defendants. SeeCommerce Commission v Lodge Real Estate Ltd [2016] NZHC 1494; and Commerce Commissionv Lodge Real Estate Ltd [2016] NZHC 3115.(a) contravened s 22(d) and/or (h) of the Act by issuing statements tocustomers affected by the Duplicate Policy issue; and(b) contravened s 22(a) and/or (h) of the Act by issuing statements tocustomers affected by the Ineligible Customer issue.[91] I impose a penalty of $280,000 on ANZ for its contraventions of the sectionsidentified.[92] I make an order under s 493 of the Act that the penalty be applied first to theFMA's costs in bringing the proceedings.__________________________Muir J