Tracking the origins of ASB and IAG’s $155 million bad week at the office
Sunday, 12 October 2025
ANALYSIS: Sometimes, it’s hard to pinpoint the origin story of a crisis to a single moment in time.
This week saw two landmark events: the historic $19.5 million fine handed down to insurer IAG, and the landmark $135.6m class action settlement by ASB.
Both were records.
The first was the highest-ever penalty under the Financial Markets Conduct Act, which became law in 2013 after the Global Financial Crisis. The second was the largest settlement in a rare New Zealand class action.
An argument could be made that one origin story goes back as far as the early 2000s finance company collapses that prompted the start of the re-regulation of financial services.
Another argument is that it goes back even further to New Zealand’s laissez-faire era when markets were assumed to regulate themselves; frequent takeovers and a disregard for competition effects led to the creation of monster banks and insurers, and regulators were so weak and underfunded they were no force to be feared in corporate head offices.
Still another argument is there’s an origin story that starts with the 2017 Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry which revealed wrongdoing by the parent organisations of New Zealand’s largest banks and insurers, which in turn inspired a forceful regulation in New Zealand of banks and insurers.
And then, for the ASB class action, there was the moment in 2021 when an ambitious, but little-known young lawyer read the details of a lending disclosure stuff-up by the bank.
Lawyer Scott Russell read the settlement agreement between ASB and the Commerce Commission, which had “self-reported” its issues to regulators in 2019.
The bank had agreed to pay more than $8m to tens of thousands of borrowers after admitting it failed to ensure its systems and processes were up to scratch to ensure legally-required disclosures to borrowers between June 2015 and June 2019.
Controversial law change
The year 2015 saw tougher legal requirements brought in by Prime Minister John Key’s National government in a bid to reduce exploitative lending that blighted poorer communities. Banks were not the target of the laws.
“The Commerce Commission looked into it [ASB’s issues] and put out some documents. I read those and thought, ‘Hang on a second, there's something more here. We can start a claim on these facts that the Commerce Commission has found’,” Russell said to The Post this week.
“I guess it trampolined off the back of the the Commerce Commission's investigation. I went around and talked to funders, and talked to various people in the industry, and then got the claim off the ground.”
What he had spotted was that the 2015 law required lenders in breach of disclosure laws to pay back the cost of borrowing to borrowers - that is the interest and fees charged - for the periods in which legal disclosures were not correct.
ANZ, which continues to defend the class action, believes it has an arguable defence to that claim, but Russell’s belief appeared vindicated in 2023.
That was the year Kookmin Bank settled with the commission to refund more than $11m to customers after admitting breaches of loan disclosure rules, making it just one of many banks found to have failed to follow loan disclosure rules.
As well as ANZ and ASB, Bank of New Zealand, HSBC, Westpac and Kiwibank had all had to refund customers for similar breaches.
But the settlement agreement Kookmin signed with the commission heartened Scott, as the bank agreed to repay the full “cost of borrowing” to many of the nearly 500 borrowers to whom it failed to provided full loan disclosure documentation.
At the time, Russell told Stuff that lenders had obligations to provide key information to borrowers before they took out loans.
“These obligations are in place to ensure that borrowers can make informed decisions before entering contracts, reducing the risk for financial harm,” he said.
‘Really bad laws’
The 2015 laws were controversial, and arguably had a very non-National flavour to them.
In April, current Commerce and Consumer Affairs Minister Scott Simpson described them as “really bad laws” with a punitive effect.
Simpson said it meant that if a lender forgot to include their address on a loan document, even if everything else was correct, and the borrower wasn’t affected, they could be forced to cancel all interest and fees until the mistake is fixed.
Very shortly after the 2015 law was introduced, banks started lobbying for it to be changed, eventually winning the change in 2019. However, the lobbying didn’t end, as the banks had failed to get the law change made retrospective, absolving them of disclosure failures between 2015 and 2019.
Simpson continues to try to steer a law change through Parliament to make that happen, but it appears ASB lost confidence that was going to happen with NZ First providing the possible sticking point.
A forced mea culpa
The self-reporting in September 2019 that led to the ASB settlement in February 2021 came after banks were put under the spotlight from regulators showing a degree of muscle and resolve the country had not previously seen.
By contrast, ANZ self-reported its disclosure errors in June 2017, several months before the Australian royal commission had begun.
Rob Everett, chief executive of the Financial Markets Authority Te Mana Tātai Hokohoko, and Adrian Orr, governor of the Reserve Bank Te Pūtea Matua, had responded to rising calls for an Australian-style royal commission in this country.
The Australian royal commission had been prompted by revelations from dogged investigative reporter Adele Ferguson in her book Banking Bad: Whistleblowers. Corporate Cover-ups. One journalist’s fight for the truth.
Everett and Orr decided to work through banks, life insurers and general (house and contents) insurers, by calling on them to examine their consciences, systems and complaints files, and self-report significant and systemic issues.
The FMA itself was a relatively new entity, founded in 2011 out of the ashes of the discredited Securities Commission, with Everett poached from overseas to head it up, unencumbered by personal and professional relationships in the close-knit Kiwi financial services industry.
Era of takeovers
The High Court judgment on the setting of the $19.5m IAG fine provides insights into the country’s largest house, contents and car insurer’s “troubling compliance culture” before 2019, when the FMA’s probe into banks and life insurers widened to include general insurers, including IAG.
Justice Jane Anderson wrote: “I … note that when IAG participated in the FMA’s industry-wide review in 2019, it did not report any systemic conduct or culture issues. The identification of some 41 issues shortly thereafter – many of which date back several years – underscores that IAG’s systems were so lacking that it did not even identify the possibility of such issues when it specifically commented to the regulator on its compliance.”
But it wasn’t just culture Anderson identified as a factor at IAG. The company was built through a series of acquisitions, which left New Zealand with one of the world’s most concentrated insurance markets: it hoovered up State in 2001, NZI in 2003, AMI in 2012, Lumley in 2013, Wesfarmers’ New Zealand business in 2014.
This acquisition spree left the insurer with a lot of internal systems.
“I acknowledge … that IAG has grown substantially by acquisition and has inherited systems used by a number of businesses. This has meant that, in the relevant period, IAG used a wide variety of different systems and platforms across its various brands and insurance products. This has given rise to compatibility issues with different systems and consequent reliance on manual processes,” Anderson said.
“However, these factors are all by way of explanation rather than a lawful excuse for the contraventions,” she added.
But one of the reasons for imposing such a large penalty was “the need to ensure that any well-resourced market participant in New Zealand is not incentivised to run the risk of underinvestment”.
The insurer did not dispute Anderson’s findings and its chief executive, Amanda Whiting, said: “The underlying issues have been fixed, and all affected customers’ repayments were completed earlier this year.”
“We are doing everything to prevent these issues happening again.”