The Australian Banking Association (ABA) is currently undertaking the anticipated three-yearly independent review of the Banking Code of Practice (BCOP), with the consultation period having just closed.
In setting out the standards of service expected of the banking industry for individual and small business customers, BCOP is a critical reference point for institutions, customers and regulators. It also represents a source of significant financial and non-financial risk for banks if their policies and procedures fail to comply or meet the requirements.
Since the last review of the BCOP, banks have faced a Royal Commission and Australia has experienced numerous extreme weather events, natural disasters and the COVID-19 global pandemic – all of which have severely impacted individuals, businesses and the economy. The current review is being conducted in this context to ensure the BCOP remains aligned with rising community expectations, changing customer needs and the evolving financial market.
The Consumers’ Federation of Australia (CFA), the peak body for consumer organisations in Australia, has submitted a detailed set of recommendations. Mike Callaghan ASM PSM, the independent reviewer, will be weighing these up, amongst the other submissions, including a submission from this firm, as he considers the case for BCOP change. We expect these proposals and many others will be observed with interest by the banks as the review process moves on.
The CFA’s recommendations address a number of aspects of the BCOP and specifically respond to issues raised in the Terms of Reference. Areas that the CFA has targeted which will interest banks include the following:
- Enforceability of code provisions
Law changes at the start of the year (following on from the Hayne recommendations) gave ASIC the power to identify a code provision as an ‘enforceable code provision’, making it enforceable at law. That power is subject to certain conditions, for example an agreement with an applicant for code approval (such as the ABA acting on behalf of the banking industry).
The CFA supports making most of the substantive BCOP commitments enforceable at law. This includes, for example, paragraph 10 of the BCOP which requires banking staff to engage with its customers in a fair, reasonable and ethical manner. How the review addresses enforceability will be important from a bank’s legal risk perspective and will be keenly watched by in-house legal departments.
- Recent banking services law reform
The CFA emphasises the implementation of the Consumer Data Right. Banks should commit to meeting Australia AI Ethics Principles and to use the Consumer Data Right to provide better information to customers such as on direct debits. A key concern for the CFA is the way customer consent is obtained and how requests for consent are used.
This will be an area of intense interest for banks as they navigate customers’ access to this Consumer Data Right and the intersection with other privacy and data obligations. Clarifying the governance arrangements that ought to apply will be of crucial importance.
- Inclusivity, affordability and accessibility
The CFA makes a number of recommendations in this regard to provide more support for the Indigenous community and culturally and linguistically diverse customers.
- Meeting consumer and community expectations
The CFA raises particular issues on the sale of debt and the position of guarantors. They say, for example, banks need to take a proactive approach to monitoring the conduct of debt collectors when debts are sold to ensure they respect vulnerable customers. The CFA is also concerned about the vulnerability of third party guarantors and the severity of enforcement outcomes that can apply sometimes unknowingly to such sureties.
The CFA also takes aim at the increasing prevalence of scams noting that banks are ‘always’ in a better position to identify scams taking place over their systems, and need to take greater responsibility in their prevention.
- Vulnerability and hardship
In light of the societal context that accompanies the review, and the growing community expectations of the banking sector, vulnerability and hardship are major themes in the CFA’s submissions.
The CFA’s concerns include inconsistent industry practices in addressing financial hardship and a consequent divide between BCOP commitments and what happens in practice. Improving staff understanding of a bank’s commitments on financial hardship is one way forward.
There are a number of CFA recommendations on vulnerability including on the specific circumstances of domestic violence and financial abuse. The review’s consideration of these recommendations should, however, embrace privacy and confidentiality restrictions, the often transient nature of vulnerability, cultural and personal sensitivities and the impact of making incorrect assumptions based on how a customer presents. These are ongoing challenges that the ABA and its member banks are grappling with.
Mr Callaghan is due to report his review findings to the ABA by the end of November 2021. The ABA’s response to the findings is expected in March 2022.
How Mr Callaghan strikes the balance between the need to support consumer protection (especially for the vulnerable) and the ability for banks to provide services in an efficient, and relatively unburdened manner, will be keenly followed by the banking sector. Legal and Risk teams will be especially alive to decisions that Mr Callaghan makes that push banks further along the enforceability spectrum and changes that may require further implementation and up-skilling within those organisations.
In the meantime, if you would like to know more about the BCOP review and how it could affect your organisation, please contact us.