Nicola Howell identifies positive changes but also shortcomings in the revised Code
The Code of Banking Practice (‘CBP’) is promoted as ‘the banking industry’s customer charter on best banking practice standards’. It applies to personal and small business customers of member banks (most of the retail banks in Australia), and. in its current form, has been in force since 2004.
In 2007-2008, the CBP was independently reviewed, and the final report of the review was released in September 2008 (and is available here: http://www.reviewbankcode2.com.au/). The owner of the CBP, the Australian Bankers’ Association (ABA), agreed with most of the recommendations and has now released a revised version of the Code (the 2013 Code) (available here: http://www.bankers.asn.au/Industry-Standards/ABAs-Code-of-Banking-Practice).
So what does the 2013 Code look like?
In parts, the 2013 Code looks very similar to the 2004 version, with some provisions being simply tidied up, clarified, or updated to take account of name changes.
However, there are also a number of important new provisions, and other provisions from the 2004 Code have been substantially revised for the benefit of consumers and small businesses. For example,
- There are expanded provisions dealing with customers in financial difficulty, including commitments to deal with an authorised financial counsellor or representative on request, to provide a written response (with reasons) to a request for assistance, and to include information about processes for dealing with financial difficulty (including contact numbers) on bank websites (clause 28).
- There is a commitment to comply with the ACCC and ASIC Debt Collection Guidelines, and to only sell debts to third parties that agree to comply with the Debt Collection Guidelines, as well as an agreement that debts will not be assigned while a financial hardship request is being considered, or while a debtor is complying with an agreed arrangement in relation their debt (clause 32).
- There are new commitments to customers in remote Indigenous communities, including commitments to make information about relevant banking services available in an accessible manner, and to assist customers with meeting identification requirements (clause 8).
- There is a new commitment to giving small business customers 10 written business days notice of a materially adverse change to the terms of a credit facility (unless the change also applies to the facilities of other small businesses, or a shorter notice period is needed to avoid or reduce the bank’s increase in credit risk) (clause 20.4).
These are some of the changes that are welcome improvements on the 2004 Code.
On the other hand, the definition of commercial asset financing guarantor has been widened, meaning that some guarantors will no longer get the full benefit of the Code provisions (clause 31.15), and the Code Compliance Monitoring Committee (CCMC) will no longer be able to investigate or report breaches of the key commitments and general obligation to comply with relevant laws unless the conduct also breaches another provision of the Code (clause 36(b)).
The 2013 Code also includes a detailed Mandate document governing the operations of the CCMC. This is a significant improvement in transparency, as until now, the CCMC’s jurisdiction had been governed by an unpublished document. Unfortunately, the CCMC continues to be limited in its ability to investigate matters that are more than 12 months old (CCMC Mandate para 6.2(a)((vi), (vii). Also, there is still only one sanction available to the CCMC in the event of non-compliance or non-cooperation with the CCMC, and that is public naming of a bank (clause 36(j)) – although the CCMC is no longer limited to naming in the annual report, but can now also name a bank on the CCMC’s website.
Another disappointing change is the decision to provide for a review of the Code every 5 years (clause 6), instead of every 3 years as has previously been the case. The 2013 Code will not commence until 1 February 2014, so despite a nominal 3 year review process, the 2003/2004 Code will have had an effective life of almost 10 years, covering a period of rapid market and regulatory change. The 2013 Code does provide for regular reports on implementation of the review recommendations to be published (clause 6.4(c)), but there is no indication of how often progress reports should be published (the 2004 Code required quarterly reports), nor an overall implementation timeframe.
Self-regulation is promoted as being more flexible and less costly than government regulation, for both consumers and industry, and as being able to response to changes in the market and regulatory framework. Codes can flesh out legal obligations, and promote best practice standards. But self-regulation needs ongoing industry commitment. An industry code that is not regularly updated, with a focus on improvements in standards, risks losing its relevance for consumers and small businesses. Dissatisfaction with the CBP already exists in some quarters, particularly in relation to enforcement and sanctions. For example, a Private Members Bill has been introduced in the Commonwealth Parliament, seeking imposition of a mandatory banking code, with APRA to be given powers to impose penalties for non-compliance.
The release of the 2013 Banking Code and the new CCMC Mandate is welcome, and there are some positive changes for consumers and small businesses. But if the Banking Code is to live up to its potential to reflect best practice, a more timely review and implementation process is also needed.
Nicola Howell
(Nicola is a Lecturer in the School of Law, Queensland University of Technology. She was the Consumer & Small Business Representative on the Code Compliance Monitoring Committee between 2009 and 2012, and also authored the Joint Consumer Submission to the 2007-2008 review of the Banking Code.)