ABA executive director Anna Bligh
The Australian Securities and Investments Commission has broken new ground with its announcement that it will undertake public consultation on the Australian Banking Association’s revised Banking Code of Practice before making a decision on approving it.
This is the first time ASIC has opened consultation on an industry code before approving it, and there is plenty for interested parties to get their teeth into.
The code was reviewed by economic consultant and former senior Treasury official Mike Callaghan, who delivered his report in November 2021.
Callaghan’s main concern was that some banks see the code as no more than a regulatory burden. He recommended that the commitment banks give that they will comply with their obligations under the code should be strengthened to include a commitment that they will have in place appropriate frameworks and systems to support compliance with the code, and the effectiveness of these frameworks should be subject to audit.
The ABA took a year to respond to the review and when it did it balked at a number of key recommendations.
It did not support the new commitment. It said: “Banks already have existing obligations to maintain adequate systems, processes and programs, including under various APRA prudential standards and under the general licensing obligations of the National Consumer Credit Protection Act. Including this [recommendation] as an enforceable provision would introduce unnecessary duplication and overlap with existing legislation, and may expose banks to double penalties for the same conduct.”
Callaghan also recommended that the ABA’s best practice industry guidelines should be incorporated as code-related documents, making them mandatory rather than voluntary.
The ABA said it would include links to the guidelines in the digital version of the code but make it clear that they do not form part of the code and are not contractually enforceable. At the time the ABA’s response was released, the Consumer Action Law Centre took it to task over this response.
Callaghan recommended that the code “should reflect that it is the customer’s perspective that will determine whether information provided by the bank is clear and useful”.
The ABA rejected this recommendation, saying banks have existing processes to ensure the information they provide is clear and appropriate for different customer groups and a diverse audience. It said the standard proposed in the review was too subjective and impractical.
In an effort to address the de-banking issue, Callaghan recommended that the code specify that a customer should not be denied a banking service or have an account closed without the bank raising it with the customer and giving the customer an opportunity to respond.
The ABA did not support this recommendation, saying banks needed the ability to use discretion depending on the circumstances. It added that in some cases it was not appropriate to give a customer reasons for its decisions (for instance, where anti-money laundering rules require confidentiality).
The ABA rejected a related recommendation that if a bank is going to cancel a credit card it should offer to discuss this with the customer.
It rejected two recommendations dealing with buy now pay later products: a recommendation that the code include a commitment that buy now pay later products issued by banks will be subject to credit checks and eligibility requirements; and a recommendation that banks commit to only partner with BNPL providers that are members of the Australian Financial Complaints Authority and agree to meet ASIC guidelines on dispute resolution.
It said BNPL is likely to be subject to regulation, which could supersede a code obligation, and the AFCA commitment might put banks in breach of restrictive trade practices rules.
Callaghan made several recommendations aimed at making guarantee arrangements fairer, clearer and more secure. The ABA rejected all these recommendations, even though banks have been criticised by the Banking Code Compliance Committee for their management of guarantee arrangements.
On the positive side, the ABA accepted a recommendation to update the definition of small business, which it estimates will extend the protections of the code to an additional 100,000 small business customers.
It will update sections dealing with accessibility and vulnerable customers to broaden their application. In particular, it has agreed with recommendations to make interpreter services available, along with services for people with hearing disabilities.
And it supported recommendations aimed at better debt collection services, including a commitment to monitor the collection activities of debt buyers before selling debt to them, and a commitment that if a debt relates to a customer experiencing vulnerability, the bank should not sell that debt to a third party.
It is clear from the key issues ASIC has raised for consultation that it is interested in getting a wide range of views on the recommendations the ABA has rejected. It is looking for feedback on the following issues:
· whether the proposed code imposes obligations on subscribers that are beyond those required by the law and, in doing so, addresses key potential consumer harms;
· whether it provides for effective administrative systems for monitoring and compliance and whether the obligations are capable of being enforced;
· whether any code review recommendations that the ABA has not supported should be included;
· whether the recommendations accepted by the ABA are appropriately reflected in the proposed code and its charter;
· whether the code strikes an appropriate balance between simplifying the code and minimising regulatory duplication on the one hand, and promoting consumer awareness of protections applicable to their banking relationship on the other; and
· the role of industry guidelines.