Banking Code of Practice

The new Banking Code of Practice (Code) has been published by the Australian Banking Association.

The Code outlines standards of practice and conduct for banks, their staff and representatives in their dealings with individual and small business customers, as well as guarantors of those customers.

It represents a complete re-write of the current Code of Banking Practice finalised in 2013 and introduces new guiding principles and measures that all retail banking staff and representatives should be made aware of.

The Code is voluntary and will apply to retail banks in Australia who adopt it.

However, in an industry first, it will be mandatory for retail banks in Australia to adopt the Code as a condition of their Australian Banking Association membership.

The Code applies to the following persons who are being, or may be, provided banking services (collectively referred to as customers throughout this update):

• Individual customers
• Small business customers with an annual turnover of <$10m in the previous financial year, fewer than 100 FTE employees and <$3m total debt to all credit providers
• A guarantor or prospective guarantor securing a loan to an individual or small business customer

Banking services means any financial services or products provided by the bank or through an intermediary. It includes bank accounts, term deposits, credit and debit cards, home and personal loans, overdrafts, bill facilities, consumer credit insurance (CCI) and payment and forex services but expressly excludes shares, bonds and securities as well as financial products and services provided to wholesale customers.

Yes. Signatory banks must include a statement in relevant contracts confirming that the Code applies, giving the Code’s provisions the force of law.

The independent Banking Code Compliance Committee will monitor and oversee compliance with the new Code and has been granted new powers to regulate potential breaches.

Signatory banks have until 1 July 2019 to adopt the Code.

The provisions will then apply to new banking services provided to individual or small business customers from the date the Code is adopted, together with guarantees entered into from this date.

The new Code will generally not apply to existing banking services or guarantees unless the bank subsequently revises the terms and conditions or increases the limit of the guarantee after the date the Code is adopted.

The Code introduces a diverse range of new measures for the purpose of better protecting customers and ensuring their needs and interests are front and centre of decision making when offered or provided banking services.

Some measures aim to simplify banking for customers and provide them with adequate and clear information about the bank’s full range of products and services to empower them to make an informed decision about suitability. Others introduce a variety of mechanisms aimed at safeguarding the customers’ interests. These include a deferred sales period before CCI can be offered on certain personal loan and credit card applications, a commitment to enforce security from borrowers before enforcing security provided by guarantors, an obligation to apply payments received on consumer credit cards to the amounts that incur the highest interest and restrictions on when banks can enforce loans against small businesses for non-monetary defaults.

• Guiding principles: The Code introduces 16 overarching principles that provide an ethical and customer-oriented framework to guide staff and representatives in their dealings with customers. These principles based on Trust and Confidence, Integrity, Service and Transparency and Accountability will have wide application and careful consideration should be given to how these principles can be embedded across your organisation and how you will demonstrate that they were given due consideration in the decision making processes.
  
• Inclusive and accessible banking services: Signatory banks must provide inclusive and accessible banking services to all of its customers, in particular the elderly, indigenous customers and those with disabilities. Extra care must be taken when providing banking services to vulnerable customers, including potentially referring customers to external support if appropriate. A non-exhaustive list of vulnerabilities include those suffering from domestic, elder or financial abuse, mental or physical illnesses, age or cognitive impairment or any other personal or financial circumstance causing significant detriment. It will be important to educate staff and representatives on how to identify potential vulnerabilities and have systems in place to track potentially vulnerable customers in all their dealings with the bank.
  
• Expanded protection against unfair contract terms: The Code extends the existing protections provided to small business customers in the unfair contract terms legislation. Under the Code, there is a prohibition on a range of potentially unfair and one-sided terms in contracts for small business borrowings of up to $3 million. Unfair contract terms legislation applies to small businesses who borrow up to $1 million.
  
• Enforcement against customers: There are a number of new measures that will impact how and when banks take enforcement action against customers. These include requirements for additional internal oversight concerning the appointment of investigating accountants as receivers to ensure the decision is necessary, loan terms and conditions stipulating how and when banks will not enforce a loan against a small business customer for non-monetary defaults and guarantors being provided certain information about a borrower’s deteriorating financial position as it relates to the guaranteed loan within 14 days as well as an obligation to enforce against a borrower’s assets first. These measures will not only require changes to standard form contracts and security documents but also changes to policies, procedures, systems and processes as well as training for all relevant staff.
  
• Responsible lending: An invigorated focus on, and commitment to, responsible lending to individual and small business customers.
  
• ASIC intervention: ASIC spent more than 6 months negotiating amendments to the new Code before taking the unusual step of endorsing it (a first for a finance sector industry code). This not only demonstrates ASIC’s commitment to the Code but also suggests that the regulator and other bodies such as AFCA will use the standards of practice contained within it to evaluate the conduct of the entire banking industry. As a result, even if your organisation does not adopt the Code, it could still have a significant impact on your business and staff.
  
• Training: A central feature of the Code is a commitment by the banks that all staff will be trained to ensure they can competently do their work and that they understand the Code and how to comply with it. Training will be crucial in embedding the Code’s guiding principles and effecting a mindset shift to one of customer centricity.

Our multi-disciplinary team of banking, insolvency and regulatory legal experts, together with our risk and compliance experts, can help you to get Code compliant.