Banking code overhaul to shift power balance towards customer

The corporate watchdog has rubber-stamped the first serious overhaul of the banking code of practice in 25 years.

ANZ chief executive Shayne ­Elliott: ‘ANZ will implement the new code in full.’ Picture: Hollie Adams.

The corporate watchdog has ­rubber-stamped the first serious overhaul of the banking code of practice in 25 years, but conceded ground to the industry by accepting a lower threshold definition of small business.

The result is that the code’s protections will apply only to businesses with a maximum of $3 million in total credit facilities.

The Australian Securities & Investments Commission is understood to have been pushing for a figure of up to $5m, in line with the position of the Small Business and Family Enterprise Ombudsman Kate Carnell.

ASIC, however, agreed to a compromise, with a review of the definition to take place within 18 months of the code’s commencement on July 1 next year.

The code includes a host of reforms to make banking products easier to understand and more ­focused on the customer.

The benefits include more ­information about charges to ­customer accounts, delay in offering add-on insurance products and simpler contracts with fewer conditions for small business loans.

The banks are hoping that implementation of the code will help abate the ever-rising tide of hostility against the industry after a series of scandals and misconduct that have been highlighted in the financial services royal commission. The royal commission will hand down its final report next February, months before the code’s commencement date.

ANZ chief executive Shayne ­Elliott said the code would provide enforceable protections for retail customers and 98 per cent of business customers. “We ­already have simplified contracts for small business, and ANZ will implement the new code in full and ahead of schedule.”

National Australia Bank chief executive Andrew Thorburn said the code raised the bar that the banks had to meet every day to deliver the service that customers “can and should expect”.

“We will prioritise implementing the code as quickly as possible as part of our determination to be better,” he said.

The protections for firms that fall within the code’s definition of small business are significant because they are designed to rebalance in favour of customers some of the huge negotiating power held by the banks.

For small businesses borrowing up to $3m, the code invalidates lending contracts with potentially unfair or one-sided terms.

If repayment terms have been met, a bank is prevented from taking enforcement action, with a limited number of exclusions ­including bankruptcy, breaking the law or loss of a licence to ­operate.