Council of Financial Regulators backs bankers over Hayne
The Council of Financial Regulators has weighed into the debate about whether the Australian Banking Association should change the definition of small business in the new Banking Code of Practice.The council has come out against the recommendation of the Hayne royal commission that the definition be amended.In statement detailing discussion at its latest meeting, the Council said its members "supported maintaining the current borrowing threshold to define small business within the code".Hayne recommended that the definition of small business in the code be amended to cover any business employing fewer than 100 full-time equivalent employees, where the loan applied for is less than A$5 million.In the code which commences on 1 July the definition of small business includes annual turnover of less than $10 million in the previous financial year, fewer than 100 full-time equivalent employees and less than $3 million of total debt.Earlier this month, the ABA issued a media release saying the code would be updated to reflect six royal commission recommendations covering such areas as dealing with customer in remote areas and banning informal overdrafts on basic bank accounts.But the ABA said it had "not yet reached a view" on changing the definition of small business. Its concern is with the proposed change from total credit exposure in the code now, to a per loan facility definition (regardless of existing borrowings).It said the recommendation was a "very significant expansion" on the current definition. "The industry has serious concerns that this recommendation may have a material impact on access to credit for small business borrowers."The Council of Financial Regulators said: "The changes to the code due to commence on 1 July are significant. The effects of these changes and any responses to them by lenders, including small to medium sized lenders, is still to be gauged."In light of this and the tightening in credit conditions that has taken place, members supported maintaining the current borrowing threshold to define small business within the code, with an independent review to be undertaken within 18 months of the code's commencement."This would allow time for sufficient information to be gathered on the effects of the initial changes and the potential effects of the changes in the small business definition recommended by the royal commission."Members expressed a view that a limit based on total credit exposures is more appropriate than one based on loan size."