The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, has welcomed the government’s decision to retain and enhance vital protections for small businesses in the new Banking Code of Practice, despite the pushback from the banks.
“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,” 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 Banking Code of Practice aims to establish consistent industry practice standards and will come into effect on 28 February 2025 after thwarting the efforts by the Australian Banking Association to remove the detailed ‘how to’ requirements regarding complaints handling and instead refer customers to ASIC Regulatory Guide RG 271, which has been part of the code.
“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,” Billson explained. “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.”
Billson also pointed out that 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,” 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.”
The Ombudsman also shared that the protections of the code will cover at least an extra 10,000 small businesses by increasing the value used in the aggregate borrowing criterion from $3 million to $5 million. The code will also have an updated introduction with information about how eligible individuals, small businesses and their guarantors can enforce their rights.
The new code will also force the banks that have signed the original 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.
In addition, there is an updated conduct pledge that pushes the banks to do all things necessary to ensure that banking services provided under the code are provided efficiently, honestly and fairly. There is also an updated definition of vulnerability and an enhanced definition of financial difficulty which would cover customers who are likely or expecting to be unable to meet future repayments.
Billson said that 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.
The Ombudsman has also urged the ongoing independent review of the 2020 General Insurance Code of Practice, to follow ASIC’s example by applying the same lens of protecting small businesses and consumers.
