Australia’s Banking Code of Practice is set for a significant overhaul, aimed at bolstering protections and improving transparency in how banks handle complaints and support struggling businesses.
The Australian Securities and Investments Commission recently approved the Australian Banking Association’s new Banking Code of Practice, marking the first revision in four years. This updated framework, effective from Feb. 28, 2025, expands coverage to more small businesses by increasing the borrowing threshold from $3 million to $5 million in aggregate borrowing.
The revised code mandates clearer guidelines for banks on how small businesses can assert their rights, introduces a robust complaints handling process emphasizing fairness, customer communication, and written responses, and enhances safeguards for vulnerable customers facing financial challenges.
The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, says he welcomes the regulator’s decision to retain and enhance vital protections for small businesses in the new Banking Code of Practice.
“A push by the banks to shrink the Code has been rejected and they must continue to include an explicit and detailed pledge outlining how they will handle complaints,” Mr Billson said.
“The code will also be expanded to cover at least 10,000 more small businesses and it will include clear information about how a small business can enforce their rights.”
The Australian Banking Association’s code, which aims to set a consistent standard of good industry practice, has been approved by the Australian Securities Investments Commission and will come into effect on 28 February, 2025.
The Ombudsman strongly advocated against the Australian Banking Association’s proposal to remove from the code detailed ‘how to’ requirements regarding complaints-handling and instead refer customers to ASIC Regulatory Guide RG 271.
“It was never reasonable to expect busy and resource-constrained small businesses to read and understand regulator guidance for financial firms, and then to decipher and be clear on how to exercise rights afforded to them,” Mr Billson said.
“We are pleased ASIC has rejected this absurd change that would have omitted from the code existing explicit commitments by banks when there is a complaint to conducting a fair and reasonable process, as well as providing information on progress, a contact person, a written response, and an explanation and monthly updates regarding delayed responses.”
Mr Billson said small, family and farming businesses were frustrated with the banks, particularly in regional areas where branch closures and the removal of automatic teller machines have deprived them of face-to-face service.
“The banking code, like all industry codes, should be viewed as the ‘floor’ of minimum standards, not the ambition,” Mr Billson said.
“Competitive access to finance has been a longstanding challenge for small and family businesses. Policy incentives need to strike the right balance between managing risk and supporting entrepreneurship, including by ensuring small businesses have reasonable and reliable access to banking services.”
Mr Billson said the protections of the code will cover at least an extra 10,000 small businesses (and potentially many more), by increasing the value used in the aggregate borrowing criterion from $3 million to $5 million.
He said the code will also contain an updated introduction with information about how eligible individuals, small businesses and their guarantors can enforce their rights.
It will also commit banks that have signed the code to take reasonable steps to make sure a meeting is held with a prospective guarantor before taking a guarantee, and to discuss customer circumstances and reasonable alternatives to repay a guaranteed liability before selling a guarantor’s primary place of residence.
It also includes an updated conduct pledge by the banks to do all things necessary to ensure that banking services provided under the code are provided efficiently, honestly and fairly.
An updated definition of vulnerability and an enhanced definition of financial difficulty aims to cover customers who are likely or expecting to be unable to meet future repayments.
Mr Billson said while the banking environment was continually evolving, rising best-practice standards and expectations should be captured in each new version of the code.
“I call on the banks to make sure the benefits of their expanded commitments and the updates in the new code apply to both current and prospective small business customers,” he said.
Mr Billson also urged the independent review of the 2020 General Insurance Code of Practice, now under way, to follow ASIC’s example by applying the same lens of protecting small businesses and consumers.
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