Benjamin Liu, Senior Lecturer in Commercial Law, University of Auckland, Waipapa Taumata Rau
Most of us would agree fairness is a good guiding principle in life. Actually defining and applying it in the law, however, isn’t quite so simple.
Since March last year, New Zealand’s financial sector – including banks, insurers and credit unions – has been governed by the Conduct of Financial Institutions regime.
At its centre sits a principle that “financial institutions must treat consumers fairly”. Under the Financial Markets Conduct Act 2013 (and amendments made in 2022), the regime is administered and enforced by the Financial Markets Authority.
Each financial institution must establish, maintain and publish a fair-conduct program that satisfies a set of statutory minimum requirements.
These prescribe internal systems, controls, monitoring and governance processes intended to demonstrate the institution treats consumers fairly in practice. Breaches can incur a “pecuniary penalty order”.
On its face, this is uncontroversial. Fairness offers moral comfort and signals decency and responsibility. But translating fairness into a legal obligation is not without cost.
It also risks compromising consumer autonomy and informed choice by forcing financial institutions to limit the shape or scope of products and services that might otherwise be attractive.
Subjective regulation
While section 446C of the act provides broad definitions of fair treatment, it leaves significant scope for interpretation by regulators and institutions.
The result is a regulatory model that is essentially subjective and which shapes the design and distribution of financial products before they go to market.
This presents practical challenges for intuitions adapting to a fairness standard that is inherently vague. But it also raises questions about the balance between consumer protection and potential regulatory overreach.
In 2024, the government consulted on whether the statutory minimum requirements for fair conduct programs should be repealed or amended.
This was in response to industry concerns that some fairness requirements were either unnecessary or duplicated other regulations, or they were unduly prescriptive given the actual risks of harm to consumers.
Industry submissions generally acknowledged the high compliance costs associated with the current framework while supporting the broader objective of fair consumer treatment.
In response, the government chose to amend rather than repeal those minimum fairness requirements. In 2025, it introduced a draft amendment bill proposing changes to the statutory requirements for fair conduct programs.
If enacted, this may make the regime less strict. But it would also force institutions that have already invested heavily in compliance under the existing law to review and modify their programs once again.
Unintended consequences
This revisiting of the law reflects the the difficulty of defining fairness as a legally enforceable standard. Fairness is not an objective concept. It’s subjective and evaluative. What’s fair to one person may not be fair to another.
Yet the law now requires that financial institutions effectively prove they are designing and offering products and services in ways that align with the Financial Markets Authority’s evolving understanding of fair treatment.
As a result, even where consumers understand a product’s features and willingly accept its risks, the fairness obligation may still require institutions to reconsider whether the product should be offered at all.
On the surface, prioritising consumer interests over consumer choice might seem reasonable. But it can have unintended consequences.
In 2021, for example, the government amended the Credit Contracts and Consumer Finance Act to impose highly prescriptive affordability checks on all consumer lending.
A 2022 investigation by the Ministry of Business, Innovation and Employment found the reforms had caused borrowers who should have passed the affordability test were being declined or offered reduced credit.
Fairness and risk
Because the fairness principle is broad and subjective, even if the Financial Markets Authority’s current interpretation is reasonable there is no guarantee future enforcement will be.
Once parliament embeds an open-ended moral concept in law, it hands significant discretion to whoever interprets it next.
Of course fairness matters. But it should be a moral compass for financial institutions and a cultural expectation for financial markets rather than an opaque licence for regulatory paternalism.
It risks turning financial institutions into overseers of consumer behaviour rather than providers of products and services.
It would be more straightforward to enforce existing laws such as the Credit Contracts and Consumer Finance Act and the fair-dealing provisions in the Financial Markets Conduct Act.
The aim should be to target specific misconduct, strengthen consumers’ financial literacy through education, and intervene where there is genuine, demonstrated harm.
The law should preserve the space for consumers to make their own decisions, even when those decisions involve risk. Fairness is a virtue, autonomy is a right. We should be careful not to sacrifice the second in the name of the first.
Benjamin Liu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
