In Australia, all retail banks are held to the Banking Code of Practice (BCoP), a compulsory, binding and enforceable Code the adoption of which is required for Australian Banking Association (ABA) members. Formerly, individual banks could choose whether to adopt, but the industry’s efforts to improve conduct and culture in banking prompted the move to make it a mandate.
Violations of the BCoP can include substantial fines and jail time for individuals and/or institutions involved. However, the BCoP stands as a bare minimum for legal expectations in banking. Top-down mandates and enforcement can only go so far without stepping into the realm of government overreach. Banks and bankers themselves must aspire to a higher level of professionalism in financial services.
Fundamentals of the Banking Code of Practice
The Banking Code of Practice was first developed in 1993, designed to create a standardised set of practices for the Australian banking industry. It was intended to serve the dual purposes of ensuring that banks effectively and fairly served customers and improving the performance of bankers and guarantors.
For several decades, adoption of and adherence to the Code, published by the Australian Banking Association (ABA), was voluntary. By 2019, when the Code underwent its most recent and comprehensive revision to date, 14 banking groups, comprising 19 banks (representing nearly 95% of the retail banking market), had voluntarily signed up to the Code.
The 2019 version, which went into effect in July 2019, established a requirement for retail banks to adopt the Code as a prerequisite for membership in the ABA. An independent body, the Banking Code Compliance Committee (BCCC), now oversees banks’ compliance with the Code and has various powers to ensure Code enforcement, including the ability to:
- Monitor bank activity and request information related to activities regulated by the Code
- Investigate any allegation of a Code breach
- Investigate severe or systemic breaches
- Make findings and recommendations on Code breaches
- Formally warn a bank, and/or publicly name a bank for breaches
- Require a bank to rectify or take corrective action in cases of severe violations
- Order a bank to undertake a compliance review or to train staff
- Apply sanctions on banks (and other stakeholders)
- Report serious, systemic, and/or ongoing issues to the Australian Securities and Investments Commission (ASIC)
- Provide guidance and reports, and undertake other reasonable functions and responsibilities as needed
The decision to mandate Code adoption by retail banks roughly coincided with the Final Report from the Royal Commission, which concluded its enquiry into misconduct in the banking, superannuation and financial services industry in February 2019.
The Banking Code's importance to professionalism
Professionalism should always be considered critical to banking professionals (and those in the financial services sector as a whole). However, it’s especially important in an era when the general public has a distrust of the industry due to high-profile cases of unethical or corrupt behaviour by financial institutions and individual bankers alike.
Adherence to the new banking code sets Australia's banks back on the path to transparency. The purpose of the code is for banks to adopt:
- Transparent and ethical behaviour, especially surrounding fairer fees
- Responsible lending practices that take into account a customers ability to repay
- A commitment to providing greater financial protection for their customers
Beneficiaries of the code include individual customers, small business customers and guarantors (or a prospective guarantor) who are securing a loan to an individual or small business customer.
A large part of the Code deals with performing due diligence on a bank customer’s ability to repay credit extended or a loan made, imposing stricter lending criteria guidelines on banking practice. It also provides for more information and transparency around fees and disclosures by responsible lenders, institutes a preset delay before signing and a cooling-off period after signing and encourages customers and guarantors to seek legal advice before changing their financial situation.
Adoption of the Code and strict adherence to its mandates can be supported by a supplementary code of conduct to positively influence organisational culture in the banking industry. However, even the higher standards encouraged by the Code aren’t sufficient to fully win back the trust of the public.
Ethical banking beyond the Code's parameters
Banks do not and should not have to limit themselves to the BCoP. The Code is a jumping-off point, but consumers are far from impressed by bankers who follow the bare minimum required by law. Rather than the BCoP being the sole solution, financial professionals should use it as a framework around which to develop and institute a voluntary code of ethics.
A code developed from the perspective of increasing professionalism in banking allows bankers to individually strengthen their value to their customers, building trust and showing good faith.
Banks can support this effort by helping to provide access to continuing education and certifications for their employees. The end goal is an industry capable of redeeming itself in the eye of the public, devoted to the greater good.
Working with FINSIA for the betterment of your bank
FINSIA has established professional standards for the banking industry that can help create a better experience for bank employees and banking customers alike. Our educational services are designed to further bolster the professionalism of Australia’s banks, to provide the public with trusted sources of financial advice whether they seek a new line of credit, a personal loan or a home loan.
Our Chartered Banker course can enrich the knowledge and professionalism of any banker, whether they are new to the field or an industry veteran. Bankers who become FINSIA members and complete the course have access to a strong network of financial experts who share their commitment to ethical banking.
Banks that choose to provide access to the course build a future-proof workforce that can transform bank relationships with their customer base. Your bank can take the next steps towards a more sustainable future by encouraging not only a deeper understanding of the Banking Code of Practice but a commitment to professionalism that far outreaches the confines of the Code.
To learn more about what FINSIA offers, contact us today.