Banks get a break on ethical obligations to customers

Banks have won a temporary reprieve from some provisions in the industry’s code of practice relating to small business dealings.

ASIC says the effects of COVID-19 should be part of any consideration of the code of practice relating to small business dealings. Picture: AAP

Banks have won a temporary reprieve from some provisions in the industry’s code of practice, after ASIC accepted the effects of COVID-19 should be part of any consideration of whether a bank has met its obligation to engage fairly and ethically with small business customers.

The Australian Securities & Investments Commission also said that the industry might not always be able to meet timelines in the Banking Code of Practice for customer communication.

The changes were welcomed by the Australian Banking Association. “These temporary changes will help continue the flow of credit to small and family businesses during current economic challenges, but recognising that the assessment of business loan applications presents unique challenges in the current environment,” the ABA said.

“(That includes) the difficulties in making predictions for matters such as the pace of economic recovery, and in assessing businesses’ ability to service loans.”

ASIC approved the Banking Code of Practice last December to take effect from the beginning of March. Among other things, the code was intended to implement recommendations from the financial services royal commission conducted in 2018.

This was particularly so in the case of accessibility of banking products and services, and easing the burden on agricultural borrowers affected by drought and natural disasters. The special note to be included in the code takes effect from July 1, applying to banking services and guarantees until March 1 next year.

It says that the Council of Financial Regulators, which includes ASIC, the Reserve Bank, the prudential regulator APRA and the Federal Treasury, has undertaken to consider the circumstances in which lenders were currently operating.

In the COVID-19 environment, it was important for banks to consider their obligations under the code, and the broader, “critical” need to preserve and restore the functioning of the economy when making decisions on the provision of banking services.

When assessing applications for new or increased small business loans, the note cites the difficulty of making predictions on matters like the pace of economic recovery, or assessing serviceability. “In these circumstances, our obligation to engage with you in a fair, reasonable and ethical manner, and to exercise the care and skill of a diligent and prudent banker, will necessarily be informed by these matters and the effects of COVID-19 generally,” it says. On certain timelines, it says banks will not breach the code if they’ve made “good faith efforts”, even if they fail to comply with a specific timeline.

In the case of complaints, the industry will have to advise customers of the possibility of delays to required notifications.

Also, they will have to advise customers of their rights to apply for external dispute resolution by the Australian Financial Complaints Authority if their matters remain unresolved after 45 days.

“COVID-19 has changed the way we live, work and conduct business,” the note says. “It continues to have a significant impact on the Australian economy. “The financial sector has a key role to play in supporting our customers and helping build a bridge to recovery.”

The ABA said the changes acknowledged that banks were dealing with high volumes of customers in distressed circumstances and were operating in uncertain economic conditions.