A new Banking Code of Practice is on the horizon
30 November 2023
Sonia Apikian,
Partner, Melbourne
Background
- The Australian Banking Association’s (ABA) Banking Code of Practice (the Code) contains a set of contractually enforceable industry standards that customers and small businesses can expect subscribing banks to uphold.
- The Code has been in place in various forms since 1993, including a range of protections that are intended to complement and set higher standards than the law, covering topics such as using banking services, inclusive and accessible banking, applying for loans, small business lending, guarantees, financial difficulty, defaults, and complaints handling.
- The Banking Code Compliance Committee (BCCC) is the independent body that monitors compliance with the Code by the subscribing banks and drives best practice.
- While the Australian Securities and Investments Commission (ASIC) endorsement is not obligatory, the ABA’s voluntary submission of the proposed new Code to ASIC reflects a commitment to consumer confidence.
The Proposed Code
Following an independent review of the Code in 2021, a new iteration of the Code has been formulated and submitted for ASIC’s approval.
The ABA’s submission to ASIC encompasses:
- the draft revised Code (Proposed Code);
- the BCCC Charter (Proposed Charter); and
- a new customer-facing document, ‘Banking with confidence: your key rights and protections as a customer’ (Proposed Customer Guide).
For the first time, ASIC will undertake public consultation before providing any final approval of the Proposed Code to ensure that the Proposed Code continues to benefit customers, small businesses and subscribing banks.
What will happen next?
| Stage 1 | Stage 2 | Stage 3 |
|---|---|---|
| 17 November 2023 | 15 January 2024 | First half of 2024 |
| ASIC consultation paper released | Comments on the consultation paper | ASIC decision on the Code approval |
Significant changes to the Code
ASIC’s consultation paper and supporting documents containing the full details of the proposed changes to the Code can be found at the following link: CP 373 Proposed changes to the Banking Code of Practice | ASIC .
The significant changes to the Code are summarised as follows:
| Amendment | Detail |
|---|---|
| Introduction | An updated introduction to the Code including a new section setting out the customer’s rights and how to enforce them. |
| Overall structure | A revised structure with 5 rather than 10 parts. Some provisions have been removed from the Proposed Code on the basis that the ABA considers them to be duplicative of other legislative or regulatory obligations. |
| Review of Code | The ABA’s review of the Code has been changed from at least every 3 years to every 5 years consistent with s1011AB of the Corporations Act and s238C of the National Credit Act. The review will include consultation with the public. |
| Conduct standard | An updated conduct standard for banks, from ‘fair, reasonable and ethical’ to ‘efficiently, honestly and fairly’. This is consistent with s912A(1)(a) of the Corporations Act 2001 (Cth) and s47(1)(a) of the National Consumer Credit Protection Act 2009 (Cth). |
| Responsible lending | The diligent and prudent banker requirements when providing a new loan or increase in a loan to an individual borrower have been removed, as it is duplicative of the responsible lending obligations under Ch 3 of the National Credit Act. However: • the Proposed Code retains the diligent and prudent banker obligation for small business loans; • it is Proposed to extend the obligation to loans that are not regulated by the National Credit Code. When assessing whether a customer can repay a loan: • where relevant, the bank may take projected future cash flows into account; • the bank will not ask a third party (such as an accountant) to certify the customer can repay the loan. |
| Small business | Updated definition of ‘small business’ which increases the upper limit of aggregate borrowings from $3 million to $5 million, resulting in a greater number of small businesses having protections under the Code. |
| Complaints | The complaints section in the current Code has been revised and largely removed on the basis that it is considered to duplicate ASIC’s regulatory guidance in Regulatory Guide 271 Internal dispute resolution (RG 271) which sets out how a complaint is to be handled and respond to. The complaints process is now referred to in both the introduction to the proposed Code and the proposed Customer Guide and provides accessibility to ASIC’s guidelines. |
| BCCC mandate | The proposed Code contains simplified provisions on the role, powers, available sanctions and resourcing of the BCCC. This information has been relocated to the introduction of the Code, recognising that these provisions are not contractually enforceable by customers against subscribing banks. A revised version of the BCCC Charter is provided as Attachment 3 to ASIC's paper. |
| New customer guide | A new customer guide will accompany the Proposed Code. The Proposed Customer Guide in Attachment 4 of ASIC’s paper is intended to be a separate, customer-facing document that complements the Code by outlining other protections that apply to the banking relationship available under Australian law. This includes how customers can enforce their rights. |
| Diverse and vulnerable customers | A commitment to ensuring bank staff and representatives are trained so that they treat diverse and vulnerable customers with sensitivity, respect and compassion. Contains an updated definition of ‘vulnerability’ which recognises that a customer may be vulnerable at any point in time. Further (non-exhaustive) examples of categories of vulnerability are included, such as customers under disability, financial difficulty, literacy/language barriers, cultural background, Aboriginal or Torres Strait Islander customers or remote locations. |
| Financial difficulty | Updated definition of ‘financial difficulty’ to include customers who are likely, or expecting, to be unable to meet future repayments. Also includes further examples of causes of financial difficulty such as loss of employment, a pandemic or natural disaster. |
| Inclusion and accessibility | New inclusive and accessibility commitment including, where appropriate and practicable, organising or referring customers to external support free of charge, including interpreter/translation services, AUSLAN, National Relay Services or accessible documentation (such as using screen readers and easy read guides). |
| Guarantees | Simplifying the guarantee provisions and including a requirement that before a guarantee is accepted, the bank will take reasonable steps to ensure that a meeting is held either in person or via video conference, phone or some other means to discuss being a guarantor and reasonable steps are taken to ensure the borrower is not present. Exceptions will apply. |
| Credit and debit cards | Where the bank already has a legal obligation under another law such as the National Consumer Credit Protection Act or the ASIC Act, removing those duplicated clauses. |
| Notification of changes to arrangements | Expanding how the bank can notify a customer of changes to terms and conditions and interest rates, including via various electronic communication channels. |
| Farmers | Providing a greater understanding for farmers when land is subject to a drought or a natural disaster. The Proposed Code provides that, land is 'in drought or subject to natural disaster' where an Australian State or Territory Government makes a declaration to that effect, or, if no such declaration is made, where banks are satisfied on other grounds that the land is in drought or subject to natural disaster. |
| Recovering a debt | Providing greater protections for customers when selling debt to a third party to include that the buyer not only complies with the Code but also that the buyer consults with the bank prior to commencing bankruptcy or insolvency proceedings to recover an unsecured debt. A new provision has been inserted stating that the bank will not sell a customer’s debt to anyone if the customer is experiencing vulnerability and the vulnerability is likely to be ongoing and there is no reasonable prospect of the debt being recovered. |
What’s next?
The public is invited to comment on the Proposed Code, Proposed Charter and Proposed Customer Guide by 11:59pm AEDT on 15 January 2024. Submissions should be sent to BankingCode@asic.gov.au.
ASIC will consider the feedback received, engage with the ABA to seek any improvements to the Proposed Code and look to decide on approving the code in the first half of 2024.
Gadens can assist banks and other lenders with regulatory issues such as preparing submissions to ASIC and training on relevant industry codes.
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Authored by:
Sonia Apikian, Partner
Susan Verginis, Senior Associate
Sarah Rogers, Senior Associate
This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.
Get in touch
- Sonia Apikian
- Partner, Melbourne
- +61 3 9252 2508
- sonia.apikian@gadens.com
