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Posted by on in Corrupt Regulators
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In 2012, Andrew Wilkie MP presented a private member’s bill to the Commonwealth Parliament: the Banking Amendment (Banking Code of Conduct) Bill 2012 (Cth).  The Bill provided for a mandatory Banking Code of Conduct (based on the then current Banking Code) to be made by the relevant Minister, and to be enforced by the Australian Prudential Regulatory Authority, which would have the power to impose civil penalties for ‘particularly grievous breaches of the code .   In explaining the impetus for the Bill, Mr Wilkie argued that: ‘[t]here is clear evidence that the current voluntary Code of Banking Practice – set up by the banks, run by the banks, overseen by the banks – does not work and is a toothless tiger’.  Mr Wilkie also indicated that he was prompted to act by concerns about the Banking Code expressed by the Tasmanian Small Business Council.
Concerns about the conduct of banks towards small businesses were also raised in a 2012 Senate Committee report on the post-GFC banking sector.  In this context, the Committee referred to the Banking Code as providing some safeguards for small businesses,and also noted the non-applicability of the consumer credit legislation to small businesses.P96F 230 P However, rather than recommending a legislative response, or an expansion of the Banking Code provisions, the Committee recommended that the banking industry establish a separate code of conduct for small business lending.  This suggests that the provisions of the Banking Code in relation to credit assessment and hardship have not necessarily worked to allay all concerns from small businesses about banking practices.
Concerns about the effectiveness of the Banking Code are not limited to small business representatives. Consumer advocates generally supported the scope and provisions of the 2013 Code on its release.  However, in their submission to the McClelland Review, consumer advocates were strongly supportive of the need for a broader range of sanctions for Banking ode breaches, and raised concerns about, among other things, the level of compliance in relation to some provisions, the lack of universal Code membership, and the proposals to reduce the applicability of some protections on the grounds of competitive neutrality. No changes were made to the Banking Code to address these concerns following the McClelland Review.
One example which highlights consumer concerns about the effectiveness of the compliance and enforcement mechanisms is the evidence of non-compliance with the Banking Code’s provisions on direct debits.  Despite few instances making their way as complaints to FOS or the CCMC, small ‘shadow shop’ surveys by the CCMC and by the consumer group CHOICE have found a high proportion of enquiries made to banks about direct debit rights resulted in information or advice that was inconsistent with the Banking Code obligations.  In this context, one commentator has suggested that ‘the bank industry’s inability to address breaches of a code that’s been in place for almost 10 years indicates that self-regulation isn’t working.  Other criticisms that can be made of the scope and operation of the Banking Code include the failure of the Banking Code to deal with financial exclusion in consumer credit, despite financial exclusion being significant and growing in Australia.........To date, there appears to have been limited acknowledgment of the validity of these and other criticisms of the Banking Code by the industry. In a media release, the Chief Executive of the ABA rejected the suggestion of Mr Wilkie that the Banking Code was a toothless tiger, and explained the enforcement options in the event of a breach of the Banking Code in the following way:
The Code of Banking Practice is a contract between customers and subscribing banks which means courts can review compliance with the code. Banks’ small business customers and individual customers have a number of avenues they can take a complaint if they believe that a bank has breached the Code of Banking Practice. They can go to the Financial Ombudsman Service (FOS), the Code Compliance Monitoring Committee (CCMC) and the Australian Securities and Investments Commission (ASIC).  However, relying on these three bodies or the courts (and tribunals) for enforcement of the Banking Code is not entirely satisfactory. Each suffers from limitations in their ability to provide redress and/or make findings about Code breaches.
  • First, as mentioned above, most disputes made to FOS are resolved without the need for a FOS decision. Even where a FOS decision is required, FOS does not necessarily always identify Banking Code breaches. As a result, a disputant may be awarded a remedy, but may not receive a definitive statement from FOS as to whether or not a bank has breached the Banking Code.
  • Secondly, while the CCMC can make a finding about a Code breach, it receives relatively small numbers of complaints, has only one sanction available to it in the event of identifying a breach,P1015F 249 P and has had the scope of its jurisdiction curtailed somewhat in the 2013 Code (and accompanying CCMC Mandate).
  • Thirdly, ASIC has no independent power to investigate an allegation of noncompliance with the Banking Code unless the conduct also involves a potential contravention of the ASIC Act or Corporations Act (or another piece of legislation for which ASIC has enforcement  responsibilities).
  • Finally, some customers have sought to argue a breach of the Banking Code in litigation, as part of a claim or series of claims against a Code-subscribing bank. Despite the suggestion by the ABA that the courts will be able to review compliance with the Code, and other support for the proposition that Code subscribing banks are contractually bound by the code, there has not been a consistent approach by the courts to the status and enforceability of the Banking Code.........
The Banking Code is not a perfect instrument. Among other things, there remain concerns about compliance in some areas and the mechanisms for enforcement when there is non-compliance, tensions in regards to aspirational matters and competitive neutrality, and a lack of coverage of one of the significant emerging issues in the banking sector, that of financial exclusion from consumer credit...........
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Preview attachment Code of Banking Practice revisited Nicola Howell 2015.pdf
Code of Banking Practice revisited Nicola Howell 2015.pdf
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