ASIC has considered and approved an updated version of the Australian Banking Association’s (ABA’s) Banking Code of Practice, which will commence on 1 March 2020.
Among other things, the March 2020 Code is intended to implement recommendations from the Royal Commission relating to accessibility of banking products and services and easing the burden on agricultural borrowers affected by drought and natural disaster.
ASIC’s decision to approve the March 2020 Code follows our engagement with key stakeholders to ensure that the new provisions appropriately protect consumer and small business customers and their guarantors.
The updates in the March 2020 Code include changes to:
- introduce the concept of ‘basic accounts’ that have minimum features (including no account keeping fees, no minimum deposits, free direct debit facilities and access to a debit card)
- provide for eligible low-income customers to access basic accounts and other low and no-fee accounts, each of which must not feature informal overdrafts, dishonour fees or overdrawn fees
- clarify the restrictions on non-monetary defaults on small business loans
- extend protections to guarantors of small business loans – banks will now be required to first pursue the borrower in the event of default, before the guarantor (previously the Code limited these protections to guarantors of consumer loans), and
- prohibit default interest on small business loans secured by agricultural and commercial property in the event of drought or natural disaster.
The ABA published the March 2020 Code on its website on 12 December 2019. The approval is contained in ASIC Corporations (Approval of March 2020 Banking Code of Practice) Instrument 2019/1255.
ASIC has also issued ASIC Corporations (Banking Code of Practice – Revocation of June 2019 Approval) Instrument 2019/1254 to revoke its approval of the version which was previously approved in June 2019. That version of the Code (the July 2019 Code) commenced on 1 July 2019. The revocation will take effect from 1 March 2020, to allow the July 2019 Code to continue under ASIC’s earlier (July 2019) approval until the March 2020 Code commences.
Further changes commencing in March 2021
ASIC’s decision to approve the March 2020 Code is on the understanding that the ABA will revisit the Code’s definition of ‘banking services’ and include an amended definition in the Code from 1 March 2021. The amended definition will address a concern that stakeholders and ASIC raised about the consequences of the current definition (which refers to the Chapter 7 Corporations Act 2001 definitions of ‘retail client’ and ‘wholesale client’) for small business coverage under the Code.
ASIC also notes future additional changes relating to informal overdrafts on basic accounts. These changes are required by the Australian Competition and Consumer Commission’s determination and conditional authorisation AA1000441, issued on 21 November 2019.
Enforcement of the Code
ASIC does not administer the Code – for this, there is an independent Banking Code Compliance Committee. Customers may also take their complaints through internal dispute resolution and to the Australian Financial Complaints Authority for external dispute resolution. ASIC also notes that customers can use the Code in private litigation, as the relevant terms of the Code form contractual terms and conditions between the bank and their customer.
- the rules in the Code are binding on the ABA’s members and form part of the contracts between banks and their customers
- the Code was developed and reviewed in a transparent way, which involved significant consultation with relevant stakeholders including consumer and small business groups, and
- the Code is supported by effective administration and compliance mechanisms – the Banking Code Compliance Committee (BCCC) will have oversight of the banks’ Code compliance, tools to require banks’ cooperation with the BCCC’s monitoring and investigations and a range of sanctions for non-compliance with Code provisions.
At the time of seeking ASIC’s approval of the July 2019 Code, the ABA also proposed further updates for commencement on 1 March 2020. The ABA proposed the updates to address recommendations in the Final Report of the Royal Commission and stakeholder feedback relating to various small business protections. These updates form part of the March 2020 Code.
ASIC is presently collecting quarterly small business loan data from ABA member banks, and the ABA must commission an independent review of the definition of ‘small business’ by 1 January 2021. These activities will help ASIC assess whether the current definition is covering an appropriate proportion of Australian businesses. ASIC is presently analysing the first two quarters of data.