ASB does deal with FMA over sales practices

The Commerce Commission said it considered ASB had been misleading in the way it marketed interest rate swaps Photo / Michael Craig

ASB's sale and marketing of interest rate swaps and term funds is to be independently reviewed after it reached a settlement with the Financial Markets Authority.

The agreement follows a separate deal with the Commerce Commission, where the bank paid $3.2 million in a settlement over its sale of interest rate swaps to farmers between 2005 and 2009.

Two other banks - ANZ and Westpac - have also made payouts and together the trio of financial institutions have put up $24.2 million that will go back to rural customers and their communities.

All three banks settled with the commission in out-of-court-deals over their sale and marketing of swaps, which are a financial derivative product that allows borrowers to manage interest rate exposure on their borrowing.

In ASB's case, the commission said it considered that ASB had been misleading in the way it marketed interest rate swaps and therefore breached the Fair Trading Act. ASB did not accept these conclusions, but agreed to admit that some of its conduct breached section 9 of the Fair Trading Act in relation to some named customers.

The FMA did not carry out a separate investigation into ASB but because of the Commission's conclusions, it had "concerns about potentially misleading conduct" by the bank over the sale and marketing of interest rate swaps to some rural customers.

The FMA acknowledges this has not been tested by a court.

Nonetheless, the parties have reached a settlement in which ASB will have its sale, promotion and marketing of interest rate swaps and terms funds independently reviewed.

It will then implement the recommendations from it.

The FMA's General Counsel, Liam Mason, said today that "consumers are entitled to receive full and accurate information when purchasing financial products or services".

"One of the FMA's strategic priorities is to ensure that sales processes and advice services reflect the best interests of customers. This settlement recognises our concerns about the imbalance of information that can exist between customers and financial service providers."

"The review will also help to ensure robust sales and advice processes are in place, including the disclosure of all relevant information, and that they meet the standards of the new regulatory framework," he said.

The FMA has already reached similar deals with ANZ and Westpac.