Small business concerns plague new banking code
Small business advocates are vowing to monitor how the major banks apply a new industry code of practice after it received conditional regulatory approval on Tuesday.A revamped banking code was published by the Australian Banking Association last year, but underwent a raft of changes following concerns raised by the Australian Securities and Investments Commission.The protracted consultation process has resulted in the ABA agreeing to insert additional protections for retail and business customers of the 24 banks on its membership register.The revised code, which takes effect from July next year, deals more seriously with business customers by expanding the reach and impact of legal protections against unfair contract terms.ASIC forced the ABA to tighten protections for small business borrowers by reining in potential triggers for non-monetary default and restricting the actions banks can take in such circumstances.While business groups say the new code will afford greater protection for small and medium enterprises, most are worried that the code will not help thousands of business borrowers.Their main concern is that the code will only apply to small businesses that borrow up to A$3 million.Small business leaders have been campaigning for the threshold to be raised to $5 million - in line with the jurisdictional limit on small business complaints heard by the Australian Financial Complaints Authority."AFCA will hear cases for small businesses that borrow up to $5 million - we don't see why the code should specify a lower threshold," said federal small business ombudsman, Kate Carnell. "We made it clear that $5 million was a reasonable figure."It is not unusual for a small manufacturer to require a loan above $3 million to purchase new capital equipment." The Council of Small Business Organisations of Australia is also disappointed that the borrowing threshold was not improved. COSBOA chief executive Peter Strong said most of the banking industry's resistance to raising the threshold had not come from the four major banks. "It's my understanding that the pushback came from smaller banks," he said."It apparently created more problems for them." ASIC said in a statement that its approval of the code was conditional on an independent review in 2020 of how a small business should be defined. "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," the regulator said. ASIC will also collect data from banks and AFCA to monitor and assess how the code operates for small business customers. Strong said the code was an opportunity for the banking sector to retrieve public standing but said he was concerned that it did not have any legislative underpinning. "It's a big opportunity for the banks to make themselves transparent, although they don't have a great history of following the rules," he said. "The code has got some good protections in it so for it to work it has got to be transparent, it's got to be monitored and