In our recent webinar focusing on the finance industry, regulatory specialist Dr Drew Donnelly consider two new codes for banking and lending. This year has seen the finalisation of two distinct codes covering lending and banking businesses in Australia: The Banking Code of Conduct 2019 (Banking Code) and the Code of Lending Practice: AFIA Online Small Business Lenders (Lending Code).
This webinar forms part of our series looking at the role of fintech, financial services, and the regulatory and compliance environments that surround them. If you would like to know more about our work supporting companies in the fintech and financial services sector, please contact us by clicking here.
Below you can view a full transcription of the webinar along with the video.
Recent Developments in Banking & Fintech
- Open Banking Reforms / Consumer Data Right
- Fintech Lending Code
- Banking Code
- Extension of Fintech Sandbox
- Royal Commission Interim Report
Code of Banking Practice
The Code of Banking Practice (the Code) sets standards of good banking practice.
The original Code took effect on 1 November 1996. It was most recently reviewed in 2008 with amendments taking effect on 1 February 2014.
Takes into account both consultation and other reviews and reports.
- A code is valuable
- Lack of coverage for small business who need better information and enhanced protections with respect to credit
- There is a need for better coverage for customers in financial difficulty
- Improved Code Monitoring required.
New Banking Code of Conduct
- The existing Banking Code of Conduct (2013 Code) updated for 2019 in line with outcomes of Independent Review.
- Feedback from public and industry indicated the continued need for a code which exists over and above legal and regulatory obligations.
- In contrast with 2013 Code, will be compulsory for all banks that are members of the ABA by July 2019
Key Changes – Part One
> Upfront principles governing the banking industry.
> A requirement for ‘plain English’ contracts.
> Increased transparency around fees and valuations.
> Restrictions on unsolicited credit card limit increase offers.
> Elevation into an ‘industry code’ approved by ASIC.
Key Changes – Part Two
> Increased assistance to vulnerable customers.
> Simplified small business loan contracts.
> New cooling off periods.
> Clarified role for compliance committee.
> All members of ABA to sign up by July 2019.
FinTech Lending Code
> Report recommending new code for Fintech small business lenders.
> New Code established. As of June, several have signed up.
> Voluntary for members of the Australian Finance Industry Association.
> From high-level principles to detailed duties.
> Emphasis on protection for vulnerable customers and clarity.
Disclosure and Pricing Comparison
> Full disclosure of cost and fees for disclosure and pricing comparison documents.
Communication and Dispute Resolution
> All communications to be in plain language.
> Before accepting a loan offer, customers will receive a summary document.
> Internal and external dispute resolution (including CCC)
> Advertising and other information about Lona Products must be clear, concise and accurate, be written in plain language; and (c) use terms from the Lending Code.
Key Differences between the two Codes
> The Banking Code applies to all banking services which includes bank accounts and term deposits, all lending, credit cards, payment services and foreign currency exchange. The Lending Code, by contrast, only applies to online lenders who loan to small business.
> The Banking Codes is compulsory, for members of the ABA while the Lending Code is voluntary for members of the AFIA.
> The Lending Code provides for a full external dispute resolution service, whereas the Banking Code expects this to be carried out by existing dispute resolution bodies (such as the financial services ombudsman).
Implications for Compliance Programs
> Consider interaction with legal and regulatory obligations, including Corporations Act 2001, AML/CTF Act, Privacy Act, Banking Act.
> Review disclosure and contractual terms and conditions.
> Review advertising and marketing.
> Staff Training.
> Incentive Structures.