Former Queensland Premier and CEO of the Australian Banking Association, Anna Bligh, has revealed what the ABA Banking Code of Practice will mean for small business.
Bligh has taken on the role as CEO in a particularly troubling time for the banking and finance sector. She explained to the audience at the Vodafone National Small Business Summit she had taken the position for one simple reason:
“Every single Australian needs a bank. We need banks to fund the economy and individual businesses and to fund things in our own life… to fund our financial health and wellbeing.
“Getting it right really matters. And having a strong and stable system that is trusted and respected is essential,” Bligh said.
Bligh acknowledged she was aware of the reputational damage that the royal commission had delivered to the banking and finance industry and that many Australians would not consider banks trusted or worthwhile. Still, she suggested an overhaul of the code of practice was long overdue and that banks needed to be held accountable.
“When it comes to banking and small business, they need it each other,” Bligh said., claiming there are currently over one million small businesses with lending in place and over 282 billion in bank loans.
“In 2017 there were 260,000 loans issued by Australian banks. There is a lot of activity in this space and every one of those loans can be the difference between that business making it or not making it.”
So what’s in the code for small biz?
According to Bligh it’s a complete rewrite of the existing code of banking practice.
“It was done after a very thorough independent review. The code has been in place since 1983 but over the years it has become very legalistic and now it has been rewritten in plain English .
“Before doing that there was a lot of consultation with consumer advocate groups and business advocate groups. I think we were also very fortunate in terms of timing – the review by [Small Business Ombudsman] Kate Carnell – came out about the same time we started rewriting and we were able to pick up a number of recommendations and bring them into the code.
And it’s the first industry code approved by ASIC,” Bligh adds proudly.
The code will be fully implemented by July 1 2019. Its impact will be far reaching in the financial sector. It will require banks to train almost 130,00 staff, change back of house systems and algorithms.
“Firstly and foremost, for the first time, the code of banking practice will have a specific dedicated chapter on small business,” Bligh says.
For the purposes of the code a small business will be defined as one that has an annual turnover of less than 10 million. Has fewer than 100 full time employees and less than 3 million in total debt to creditors.
Bligh says most importantly the code will be reviewed again in two years to ensure the threshold meets the needs of small business.
The code makes a number of commitments to small business.
Firstly, to simplify loan contracts. Secondly to increase the notice period variance so that a minimum of three months notice must be given to businesses if a bank was no longer going to continue their loan. And finally, that if you are meeting the monetary requirements (payments) of your loan, your bank can only enact a non-monetary covenance that affects the loan.
Which in plain English means if you’re up to date on your loan payments, the bank can only default your loan if you have a non-monetary default that would prevent you from carrying on your business. Eg if you were a pub owner and lost your liquor licence or a doctor and lost your licence to practice or you were neglecting to pay wages or super.
Bligh says this last part of the code is great news for farmers, who in the past may have had their loan foreclosed after experiencing a drougt or cattle crisis that cause the property to drop in value.
Best of all, Bligh says the new code provisions are enforceable.
“The new Australian Financial Complaints Authority (AFCA) will use this code and provisions to test how a bank should have behaved,” she explains. “The provisions of the code also form part of the contract you sign with the bank. The provisions of the code are taken to be part of the contract. So, the code sets a benchmark across the industry.”
In light of the Royal Commission, Bligh says it was time for a serious commitment to enforceability and monitoring of banking behaviour.
“Suffice to say that it is in everyone’s interest that we build a better banking system. And that as painful as the process has been, sunlight is the best disinfectant . This will be in an opportunity to reset our relationships with our customers.”