It has been a year since the Banking Royal Commission and while many small businesses continue to pay the price of poor behaviour at the hands of financial institutions, the banks still have lessons to learn.
Just prior to Christmas, the Australian Banking Association (ABA) released a newly approved version of the Banking Code of Practice.
While it is certainly an improvement on previous versions, it’s problematic. Our main concern is that it doesn’t go far enough to protect small businesses.
The ABA claims it has implemented the Royal Commission recommendations, but it has not acted on all of the recommendations, including one that’s critical to small businesses.
Commissioner Hayne recommended that the definition of a small business should be businesses that apply for a loan up to $5 million and have fewer than 100 employees.
Despite our repeated efforts, the Code only protects small businesses with up to $3 million in total debt to all credit providers.
“Some of these small-business owners are now facing the prospect of losing their homes, families and livelihoods.”
What that means is that a large number of small businesses, particularly those capital-intensive businesses such as agriculture, building and manufacturing, are not covered by the Code.
While we support approved amendments to the Code to help drought-affected farmers, that same level of protection ought to be given to small businesses in these rural and remote communities that are also suffering.
Of particular concern, is a new addition to the Code under paragraph 115 b) which in effect, allows banks to take action against the small-business guarantor, before enforcing recovery against the security provided by the small-business borrower.
This is totally unacceptable and has the potential to be seriously detrimental to the small-business borrower.
During the Royal Commission, Commissioner Hayne made it clear that the ABA Banking Code of Practice is the chief protection for small-business borrowers and as such, it needs real and meaningful changes to give it teeth.
Instead the reality of what we have is a Code with a number of get-out-of-jail clauses for the banks that in effect, dilute the protections for small businesses.
The fact remains that banks and financial institutions have a long way to go if they are serious about repairing their relationship with small businesses.
Despite the shocking revelations in the Banking Royal Commission last year, banks and other large financial institutions are still focused on passing on their punishment to small businesses.
For instance, many small businesses in the financial planning industry have faced financial ruin in the aftermath of the Banking Royal Commission, with hundreds of planners bearing the brunt of brutal restructures and fire sales by banks and wealth funds.
Some of these small-business owners are now facing the prospect of losing their homes, families and livelihoods as these financial institutions and banks bulldoze their way through their exit strategies.
My office continues to work with these affected financial planners, who hope to reach a resolution with their licensors via mediations to take place across the country over the coming weeks.
In the meantime, any small or family business that has been impacted by changes in the financial planning sector is encouraged to share their story via [email protected] or submit a request for assistance via the ASBFEO website.
Kate Carnell AO, Australian Small Business and Family Enterprise Ombudsman
This story first appeared in issue 28 of the Inside Small Business quarterly magazine