Corporate watchdog ASIC has given a partial tick of approval to an updated version of the code of conduct regulating small-business lending.
ASIC said on Friday it was happy with several proposed changes to the Australian Banking Association’s code of practice, but it has reserved judgement on some of the more controversial reforms that arose from Banking Royal Commission recommendations.
The 2019 Banking Code of Practice remains the primary piece of regulation guiding conduct between banks and small businesses. It comes into effect on July 1.
For the first time, the code of practice will be an ASIC-approved document, although there’s still uncertainty over several pending changes.
As SmartCompany has previously reported, an industry fight is ongoing over a proposal to expand the definition of small business under the code.
Commissioner Kenneth Hayne advised ditching a current three-prong test for determining whether a banking customer is a small business in his final Royal Commission report earlier this year.
Currently, the banking code defines a small business as having an annual turnover of $10 million or less, fewer than 100 full-time workers and less than $3 million in total debt.
Hayne wanted this simplified so anyone employing fewer than 100 workers, and with loan facilities up to $5 million can be considered a small business.
The royal commission estimated 10,000 to 20,000 firms not currently classified as small businesses under the code would benefit from the change.
An independent review of the 2013 banking code of practice, which will soon be outdated, also recommended expanding the definition of small business.
Treasurer Josh Frydenberg wrote to banking association boss Anna Bligh in February, asking her to get on with the job of implementing the Hayne recommendations.
However, the banking lobbyist has been public about its concerns with the proposed change, calling for “careful consideration”.
Small business ombudsman Kate Carnell has characterised that position as a “cop out” and has urged the ABA and ASIC to move forward with the royal commission changes.
The ABA appears to have got its way. ASIC said on Friday it would not issue a decision on the royal commission recommendations until later this year, saying it wanted to “address stakeholder feedback relating to various small business protections”.
This will mean the expanded definition is unlikely to be included in the code when it becomes operational next week. The ABA wants to kick the can down the road on the reforms until March next year.
“Our decision will follow engagement with key stakeholders to ensure that the revised code provides an appropriate level of commitment by banks to consumer and small business protections,” ASIC said on Friday.
Changes approved on Friday related to the way banks undertake valuations for small-business customers on things like property.
Analysis of the old version of the code reveals a series of new valuation protections have been added.
The new version contains additional commitments that will force banks to provide business customers with a copy of their valuation research.
“Where we have charged you (or you have reimbursed us) for a valuation of a commercial or agricultural real property, we will provide you with a copy of that valuation and the related valuer instruction (except where enforcement proceedings have commenced),” reads the updated code.
“We may require you to acknowledge in writing that you accept our reasonable limitations on your use of the valuation before we provide it to you.”
The code provides no explanation for what “reasonable limitations” entails.
