Small business lending and consumer protection have become important priorities for financial regulators around the world. In Australia, the Australian Securities and Investments Commission has approved a new Banking Code of Practice developed by the Australian Banking Association, introducing stronger protections for small business borrowers and consumers. The code highlights the role industry standards can play alongside regulatory oversight in shaping fairer banking practices.
Active regulators is nothing new in the Australia financial services space. In this particular case, the Australian Securities and Investments Commission (ASIC), which has a primary role of ensuring market integrity and consumer protection across the financial system, basically approved the Australian Banking Association’s (ABA) new Banking Code of Practice.
Beneficial for small businesses
The new Code provides improved protection for small business borrowers, as it expands the reach of legal protections from unfair contract terms……Protection from unfair contract terms apply to small businesses that borrow up to $1m. For businesses that borrow up to $3m, the code ensures lending contracts are free from any “potentially unfair and one-sided terms.” The code will go through ASIC’s review within 18 months after its commencement to ensure the code adequately covers the small business sector.
Now for those of you not familiar with the ABA, it is an industry association of 24 member banks in Australia, which has about 55 banks altogether, with an additional 25 institutions listed as ‘Building Society, Credit Union and Others’. So what the ABA actually does, among other things (it lists 12 priority policy issues on the website), is to draft industry codes and standards.
“Continuing development of the Code of Banking Practice and a number of other industry standards and guidelines which ensure best practice across the Australian banking industry. This includes issues such as access to electronic banking, security and authentication practices, access to financial hardship assistance, protection for customers from financial abuse, and promoting financial literacy for Indigenous customers.”
So it would seem that the Australian ABA is somewhat different from the American ABA, in that it is more closely involved with government legislative collaboration before the fact.
So in this article posting from Australian Broker, we see that ASIC has adopted the recommended code and review/enforce its provisions. The interesting thing is that the code will seemingly apply only to those ABA member banks.
The regulator will also gather quarterly data from banks and the Australian Financial Complaints Authority to monitor the reach of the Code’s coverage in small businesses. ASIC will publicly release the date every six months.
The code also has some enhanced consumer protection, with language that would remind one of the CFPB in the U.S. One would need to pour through the details if interested, so we are just keeping you informed.
Australia’s Banking Code of Practice illustrates a collaborative approach in which the banking industry develops standards that are then reviewed and monitored by regulators. With expanded protections for small business borrowers, enhanced consumer safeguards, and ongoing oversight from ASIC, the code could have a meaningful impact on banking practices. Its implementation will also provide an opportunity to assess how effectively voluntary industry standards can protect customers while addressing the needs of financial institutions.
Overview by Steve Murphy, Director, Commercial and Enterprise Advisory Service at Mercator Advisory Group
