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Banking Code shakeup after Royal Commission Final Report

27 February 2019

Farmers, small business owners, customers living in remote areas or with limited English and Australians with basic bank accounts will receive new protections under a revamped Banking Code of Practice in response to the Final Report of the Royal Commission.

The new Code, approved by ASIC last year, introduces a range of new measures to make banking products easier to understand and more customer focussed. The Code itself is currently enforceable through the courts and the Australian Financial Complaints Authority as it forms part of a customer’s contract with their bank.

Of the 76 recommendations, 29 apply to banks, 7 to be taken forward by the Australian Banking Association with the remaining to be implemented by regulators and government.

The Code represents a stronger commitment to ethical behaviour, responsible lending, greater financial protection and increased transparency. The new changes announced today further increase protections for Australian customers.

The Code will be updated with key amendments in response to the recommendations of the Royal Commission Final Report, which outlined the need for changes in protection for small businesses and farmers and a greater focus on customers in remote areas and those with limited English.

Final Report Recommendation (summarised) ABA position
Rec 1.8 Provide that banks will work with customers in remote areas or who have limited English to identify ways for them to undertake their banking. ABA supports and will implement.
Rec 1.8 Ban informal overdrafts on basic bank accounts. ABA supports and will implement.
Rec 1.8 Abolish dishonour fees on basic bank accounts. ABA supports and will implement.
Rec 1.8 Banks will follow AUSTRAC’s guidance about the identification and verification of those identifying as of Aboriginal or Torres Strait Islander heritage. ABA supports and will implement.
Rec 1.10 Amend the definition of ‘small business’ in the Banking Code to the definition of any business or group employing fewer than 100 full time equivalent employees, where the loan applied for is less than $5 million. The ABA has not yet reached a view on this issue and believes more consideration needs to be given to the issue by regulators, the ABA and the small business community, particularly the change from Total Credit Exposure to per loan facility.  

Given the potential impacts, the industry believes this a prudent approach to this change.

Rec 1.13 Amend the code to end charging default interest in areas declared to be affected by drought or other natural disasters. ABA supports and will implement.
Rec 1.15 Introduce enforceable provisions of the Code, identified and agreed with ASIC, backed by legislation. ABA supports and will implement with ASIC.

In addition to changes to the Code, banks also support the Final Report’s recommendation (1.14) for clearer and improved practices for banks assisting farmers in financial distress.

Regarding recommendation 1.10, the current Code definition of $3m total credit exposure was reached after considerable evidence-based consideration about the likely impact on availability of credit and competition in the market. ASIC approval of this clause of the Code is subject to an ASIC review of its operation 18 months after it commences.

The Royal Commission recommendation to expand the definition from total borrowings of a business to an assessment on a per loan basis regardless of the existing borrowings is a very significant expansion on the current definition which the industry believes should be considered carefully before any change is made.

The industry has serious concerns that this recommendation may have a material impact on access to credit for small business borrowers.

In finalising the industry position on this recommendation, ABA members will model the impact on their own customers and consult with Treasury, regulators and small business groups.

Some of the changes outlined in the table will be subject to regulatory approval and banks will work with ASIC, the ACCC and Treasury to ensure these changes are made as soon as possible.

CEO of the Australian Banking Association Anna Bligh said that the updated Code would create a stronger code for customers.

“The Royal Commission Final Report is the industry’s roadmap for earning back the trust of the Australian people,” Ms Bligh said.

“The industry has taken the report and is acting with urgency to ensure lasting reform occurs without delay.

“The Royal Commission highlighted the need for the Banking Code of Practice to be strengthened to increase protections for small business and increase the accessibility of services for customers in remote areas or with limited English.

“In addition to the changes to the Code, banks will also deliver greater assistance to farmers through clearer and improved practices when assisting farmers with distressed loans.

“The industry will be implementing these changes to our Code as soon as possible.

“This work will build upon the new Code, approved by ASIC in July last year, which delivers a better banking experience for Australian customers,” she said.

Contact: Rory Grant 0475 741 007

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