ASIC’s approval of the Code follows extensive engagement with the ABA, following a comprehensive independent review and extensive stakeholder consultation. The ABA made additional significant changes to the Code in order to satisfy ASIC that it met our criteria for approval.
This is the first comprehensive broad-based industry code ASIC has approved under its relevant powers.
The Code will commence operation from 1 July 2019.
Significant new protections for small businesses
The new Code provides for improved protections for small business borrowers and expands the reach and impact of legal protections against unfair contract terms. For small businesses who borrow up to $3 million, the Code provides that lending contracts should not contain a range of potentially unfair and one-sided terms. Unfair contract terms protections in the law apply to businesses who borrow up to $1 million.
At its current setting of applying to small businesses who borrow up to $3 million, the Code will cover the considerable majority – between 92-97% – of businesses in Australia.
To ensure the settings in the Code provide a high level of coverage of the small business sector, ASIC’s approval is conditional on an independent review of the definition of small business within 18 months of the Code’s commencement. This targeted review will test the adequacy and application of the Code’s small business coverage in practice, and will occur well before the Code’s comprehensive review, due three years after its commencement.
At the same time, ASIC will collect quarterly data from banks and the Australian Financial Complaints Authority to monitor the extent of the Code’s coverage of small business. ASIC will ensure that this data is made public every six months. This will provide the public with ongoing transparency about the coverage of the Code.
Expanded protections for consumers
The Code has built on and enhanced the existing protections for consumers in the 2013 Code.
The new Code includes:
- provisions for inclusive and accessible banking, including for vulnerable customers, customers on low incomes and Indigenous customers;
- protections relating to the sale of consumer credit insurance (CCI) including a deferred sales period of four days for CCI for credit cards and personal loans sold in branches and over the phone;
- protections for guarantors of loans, for instance, giving prospective guarantors generally three days to consider information about a guarantee and requiring banks to only enforce a guarantee once they have taken action against the borrower;
- rules requiring credit card customers to receive reminders about balance transfer promotional periods ending, as well as more consistent treatment about how repayments are applied; and
- enhanced processes for assisting customers in financial difficulty and processes for resolving complaints.
Monitoring and enforceability
All ABA member banks will be required to subscribe to the Code as a condition of their ABA membership and the relevant protections in the Code will form part of the banks’ contractual relationships with their banking customers.
The Code will be administered and enforced by an independent monitoring body, the Banking Code Compliance Committee (BCCC). Any person will be able to report a breach of the Code to the BCCC, and consumers and small businesses with disputes about the Code protections will be able to have those disputes heard by the new Australian Financial Complaints Authority.
ASIC notes the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry may make findings relevant to the Code. ASIC may review its approval of the Code in light of the Royal Commission findings.
Background
ASIC has provided guidance on its approach to approving codes, including how to obtain and retain approval in Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183).
In approving the Code, ASIC considered that:
- 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 BCCC will have oversight on banks’ Code compliance, tools to require banks’ cooperation with their monitoring and investigations, and a range of sanctions for non-compliance with Code provisions.
