Thousands of businesses to gain protections under revamped banking code
By Millie Muroi
Thousands of additional businesses will be protected under an updated banking rule book, which will increase the borrowing limit to qualify as a small business from $3 million to $5 million.
On Thursday, the Australian Securities and Investments Commission approved an update to the Banking Code of Practice – a self-regulatory initiative by the banking peak body. The update widened the scope of Australian businesses covered by additional protections granted to small businesses under the code.
ASIC chair Joe Longo said more small businesses would be able to access the banking code’s protections.Credit: Alex Ellinghausen
In an address to the Australian Banking Association (ABA) conference in Melbourne on Thursday, ASIC chair Joe Longo said the code needed to be responsive to community need based on circumstances at the time, citing cost-of-living pressures as a recent example.
“Under the new code, more small businesses will gain access to [the code’s] protections,” he said. “Consistent with the recommendation of the Independent Review and the Pottinger Review, the aggregate borrowings limit has been increased from $3 million to $5 million [to qualify as a small business] meaning another 10,000 businesses will be eligible.”
Small business customers receive specific protections including simplified loan documentation and limits on enforcement action.
The changes to the code come after a series of reviews and consultation on the current code, which came into play in 2019 following the royal commission into the banking sector. The code is not legislated, and is not enforced by ASIC, but is agreed on by members of the ABA. It contains a set of contractually enforceable industry standards that customers and small businesses can expect ABA member banks to uphold, and is monitored by an independent body.
The previous definition of a small business required those businesses to have total credit outstanding of less than $3 million to qualify. Under that definition, more than 98 per cent of businesses were covered by the Banking Code of Practice.
“Although more than five years have passed since the royal commission, the lessons it offered should not fade with time,” Longo said. “If they do, we know from history that we will be destined to repeat the same issues. No matter where the industry is now, it should always be looking to improve and to remember the lessons of the past.”
The new code, which comes into play next February, also broadens the definition of financial difficulty, enhances protections for loan guarantors, and improves accessibility for customers, with measures including interpreter services.
The ABA said: “The updated code strengthens consumer protections by providing customers with safeguards that are in addition to the law.”
ABA chief executive Anna Bligh said it was “a banking code with teeth”.
“Customers can continue to take complaints to the Australian Financial Complaints Authority or the courts who can then take strong action when necessary,” she said. “The updated rule book for banks raises the bar even higher with enhanced protections for customers.”
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