ASIC chair Joe Longo says the new code will enhance protections for bank customers

Expanding the definition of what small businesses are protected is one of the key new provisions of the new banking code of practice approved by ASIC.

ASIC chair Joe Longo says the new code will enhance protections for bank customers. Picture: Aaron Francis / The Australian

The corporate watchdog has approved a new banking code of practice that will expand protections for more small businesses, cast a wider net over financial difficulty and increase provisions for loan guarantors.

While mention of responsible lending has been removed and replaced with “appropriate lending”, reference to diligent and prudent banking protections, which the Australian Banking Association had tried to roll back, have been reinserted in the new code, following months of consultation between the regulator, banks and consumer groups.

Giving the green light for the new code at an Australian Banking Association conference in Melbourne on Thursday, Australian Securities and Investments Commission chairman Joe Longo cautioned lenders to guard against the re-emergence of problems of the past.

“No matter where we are, there’s always room for improvement, to pay close attention to the expectations of consumers and the community more broadly,” Mr Longo said.

“While there’s much that’s good in the code, we need to be alive to apathy, complacency or in the worst circumstances, backsliding.”

Crucial for the regulator through the approval process was that there was no diminishment of key protections.

“Banks have a significant impact on our lives and Australians and ASIC rightly have high expectations of them,” Mr Longo said.

“ASIC’s review has been focused on ensuring this code can make a difference in the day-to-day practice of the banking sector and through that, good customer outcomes.”

The enhancements in the February 2025 Code include:

• Expanding the definition of a small business from $3m in aggregate borrowings to $5m meaning another 10,000 businesses will be eligible;

• Improved inclusivity and accessibility for customers, including via interpreter services;

• New provisions for deceased estates;

• Broadening the definition of financial difficulty;

• Enhanced protections for loan guarantors.

The banking code of practice is a set of rules that banks must follow when dealing with their customers, and is enforced by the Australian Financial Complaints Authority. Courts have considered it to be a contractual agreement between banks and their customers.

As part of the new code, due to come into effect from February 2025, more small businesses will gain access to its protections: the borrowing limit for businesses covered by the code will increase to those with total debts under $5m, up from the current $3m threshold.

The change gives protection to an additional 10,000 small business customers and was a key Hayne royal commission recommendation in 2019. The banking industry had initially resisted it, arguing the $3m threshold already covered 97 per cent of business loans and that increasing it could jeopardise their willingness to lend.

The updated code will also see banks improve inclusivity and accessibility for customers through interpreter services, National Relay Services, and accessible information.

Updated guarantor provisions, meanwhile, include a commitment to take reasonable steps to make sure a meeting is held with a guarantor before they guarantee a loan.

The new code also enhances the financial difficulty definition by providing additional examples of hardship causes, casting a wider net to draw in more who need support.

“Why is this so important? Because the code needs to be responsive to community need based on the circumstances at the time,” Mr Longo said.

“Cost-of-living pressures are having a significant impact on many Australians, including through the increased cost of paying a mortgage. Any process that fails to take that into account current circumstances fails to put the customer first.”

The new code also includes a new provision that commits banks to be bound by their obligations under the relevant compliance charter.

ABA CEO Anna Bligh said the updated code would provide an higher standard of customer protections.

“Banks are focused on delivering the highest standards of customer service to all Australians, and the Code is a fundamental part of ensuring this happens,” Ms Bligh said.

“This updated rule book for banks raises the bar even higher with enhanced protections for customers. It will ultimately drive even better outcomes for customers.”

Consumer groups said the putting the wording “diligent and prudent banker” back into the code was a win for bank customers but that it should not have been such a drawn-out process.

“Overall we’re happy to see a lot of the provisions that were proposed to be taken out have gone back in but it should not have taken years to get to this point. It’s been a huge drain on resources in the consumer sector,” Consumer Action Law Centre CEO Stephanie Tonkin told The Australian.

ASIC’s approval comes weeks after the regulator said it was weighing further legal action against lenders, both banks and non-banks, after they were found to be failing distressed customers. The regulator has already launched action against Westpac for ignoring hardship notices.

“The code …(is) a call for banks to continuously look at how they should be putting the customer front and centre,” Mr Longo said.

“ASIC expects the ABA to continue working with its members to consider opportunities to improve consumer outcomes through data insights, including the identification of consumers experiencing vulnerability and customers identifying as First Nations consumers.”

Originally published as ASIC chair Joe Longo says the new code will enhance protections for bank customers