Bank of New Zealand has agreed to pay $2.6 million to the Crown after admitting it misled customers about how interest was calculated on certain non-profit accounts, a breach that resulted in more than 23,000 customers receiving less interest than they were entitled to over nearly a decade.
The case highlights a growing regulatory focus on customer outcomes and conduct across financial institutions, where seemingly minor operational discrepancies can translate into millions of dollars in customer harm and significant enforcement action.
According to New Zealand’s Financial Markets Authority, BNZ updated its terms and conditions in 2014 to state that interest would be calculated daily. In practice, however, the bank calculated interest on the affected accounts using the lowest monthly balance method between December 2014 and February 2024.
The difference resulted in customers receiving lower interest payments than the bank’s own terms suggested.
A Customer Question Uncovered A Decade-Long Problem
The issue came to light in September 2023 after a customer raised a query about how interest was being calculated.
Following an internal review, BNZ identified that 23,103 customers had been affected.
The bank estimated that approximately $5.39 million in interest had been underpaid over the period.
BNZ subsequently self-reported the issue to the Financial Markets Authority and undertook a remediation program that returned approximately $5.44 million to customers, including use-of-money interest.
The regulator said BNZ admitted making misleading representations through both its terms and conditions and customer statements.
Those representations suggested interest would be calculated daily, while the actual methodology relied on customers’ lowest monthly balances.
Margot Gatland, Head of Enforcement at the Financial Markets Authority, said:
“Financial institutions must ensure their terms and customer communications are accurate and reflect how products work in practice. In this case, BNZ’s representations about how interest was calculated were inconsistent with the actual approach taken, leading to customer harm.”
Conduct Risk Remains A Regulatory Priority
The enforcement action reflects a broader shift taking place across financial services regulation.
Regulators increasingly focus not only on prudential stability and financial performance but also on whether products operate in the manner customers are told they will.
Many recent enforcement cases globally have centered on disclosure failures, fees, interest calculations, product design, and customer communications rather than traditional market misconduct.
The BNZ case fits squarely within that trend.
The issue was not that the bank failed to pay interest entirely. Rather, the problem stemmed from a disconnect between what customers were told and what occurred in practice.
For regulators, those discrepancies can be particularly serious because they undermine customers’ ability to make informed financial decisions.
The Financial Markets Conduct Act prohibits false or misleading conduct relating to financial products and services, placing responsibility on firms to ensure their communications accurately describe how products operate.
The Case Highlights Growing CoFI Expectations
The matter also arrives as New Zealand’s Conduct of Financial Institutions regime continues to reshape expectations for banks, insurers, and other financial providers.
The CoFI framework places greater emphasis on customer outcomes, fair treatment, governance, and internal controls.
Under the regime, firms are expected to maintain effective fair conduct programs supported by appropriate systems, policies, monitoring processes, and accountability structures.
The BNZ undertaking includes commitments aimed at strengthening those controls.
According to the Financial Markets Authority, the bank has committed to maintaining effective policies, processes, systems, and controls designed to prevent similar issues from occurring in the future.
The bank has also updated its terms and conditions, stopped offering the affected accounts, and moved customers onto replacement products.
Gatland acknowledged BNZ’s cooperation throughout the investigation, including its self-reporting of the issue and efforts to compensate affected customers.
The Cost Of Small Errors Can Become Significant
The financial impact of the case demonstrates how operational issues can accumulate over long periods.
What may initially appear to be a relatively small difference in interest calculations ultimately resulted in more than $5 million of customer remediation and an additional $2.6 million payment to the Crown.
Together, the total cost exceeds $8 million.
For financial institutions, the case serves as another reminder that customer communications, product design, and operational implementation must remain aligned.
As regulators continue increasing scrutiny of conduct and customer outcomes, firms face growing pressure to demonstrate not only that products are functioning correctly, but also that they operate exactly as customers have been told they will.
The BNZ enforcement action suggests that even longstanding issues can attract significant penalties when those expectations are not met.