Compliance concerns

Australian Banking code of practice released in July 2019 and many Banks have committed significant time and resources to the code transition projects.

Based on the Banking Code Compliance Committee (BCCC), 2019–20 has been a year of two distinct halves. Although it started with lots of optimism, the bush fire and covid-19 pandemic unleashed a global health and economic crisis that continues to pose a significant threat to millions of Australians and present banks with unprecedented operational challenges. The expectation and priorities of BCCC have shifted, and the focus has been more towards meeting the needs of individual and small business customers while operating in challenging circumstances.

Based on some of the code-subscribing Bank’s self-reported data

• There have been 15,597 Code breaches in 2018–19 compared to 10,123 in 2017–18.
• More than 9 million customers were affected.
• The total financial impact of the breaches was more than $90 million.
• Human error caused 91% of all breaches.
• The most commonly breached Code clauses were similar to 2017–18, with the majority of breaches concerning the Code’s obligations around privacy and confidentiality and responsible lending.

BCCC has launched an inquiry into banks’ transition to the 2019 Code to see whether they had taken the necessary steps to ensure compliance. The inquiry raised concerns about compliance in a number of key areas across the industry and highlighted the need for banks to continue their efforts to meet the BCCC’s expectations and the higher standards required under the 2019 Code.

To support the work required to be undertaken by banks, the report set out a number of specific recommendations for banks to achieve good practice and ensure ongoing compliance with the 2019 Code, with a focus on issues including:

• Senior executive oversight of compliance
• Staff training and key performance metrics
• Inclusive and accessible services for all customers
• Customers experiencing vulnerability
• Treatment of small business and farming customers.

Key recommendations include:

• Banks should adopt a broad interpretation of inclusive and accessible products and services.
• Banks should develop specific vulnerability policies, processes, training and resources to support compliance with Chapter 14. Training should be delivered to all customer-facing staff on an ongoing basis.
• Where a bank has chosen to adopt a broader small business definition, it should not later assert the relevant Code obligations do not apply.
• Without exception, banks must develop capabilities for reporting small business data to the BCCC. Banks need to provide consistent reporting to allow for benchmarking and year-on-year comparisons.
• Even beyond transition, senior executive staff should ensure that the spirit and awareness of Code obligations are embedded at all levels of the bank.
• Staff training programs should adequately raise staff awareness and competency to identify and report a possible breach of the Code internally. Training programs should promote the importance of a positive customer-focused culture that promotes compliance with the Code.
• Banks should review and develop KPIs that ensure staff performance metrics promote behaviours that prioritise good customer outcomes and reflect the Guiding Principles and spirit of the Code.
• Banks should continue developing initiatives to improve products and services that are inclusive and accessible to all groups of customers. Bespoke initiatives are important to challenge old ways of working and using external partners may provide useful expertise.

What is coming ahead?

Vulnerability, inclusivity and accessibility

Based on the feedback from the Australian Banking Association (ABA), the Australian Financial Complaints Authority (AFCA) and a number of consumer advocacy groups and small business stakeholders, BCCC initiated 2019 Code Transition Inquiry, which found that while banks had made significant efforts to empower staff to take extra care with customers experiencing vulnerable circumstances, there was more work to be done. The pandemic has made this code compliance even more critical.

Throughout 2020–21, the BCCC will continue an Inquiry into banks’ compliance with Part 4 of the Code, which outlines the key consumer protections for disadvantaged customers. Part 4 contains several new obligations that were introduced with the 2019 Code, including the requirement to treat customers experiencing vulnerable circumstances with sensitivity, respect and compassion; and the need to make banking services inclusive and accessible to everybody, including older people, people with disability, Indigenous people and people with limited English.