Coronavirus (COVID-19) Temporary Changes to the Banking Code of Practice

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Following the raft of temporary changes to Australian law to deal with the continuing COVID-19 crisis, including changes to insolvency laws, foreign investment approval requirements and signing and witnessing documents, on 25 June 2020 the Australian Securities and Investments Commission (ASIC) approved temporary changes to the Code to address the effects of COVID-19 and its aftermath.

The Code is a set of enforceable standards that individual customers, small businesses, and their guarantors, can expect from Australian banks. It contains a number of requirements that banks must comply with in relation to both considering the provision of finance and in dealing with its existing customers and guarantors.

Compliance with the Code is compulsory for all Australian Banking Association member banks that have a retail presence in Australia, and once a bank has adopted the Code, it forms a part of the contract between the bank and its customer (and any guarantor).

The Code has been varied by a “Special Note” which has been inserted into the Code, to:

1. relax the need for strict compliance with certain timing requirements under the Code to account for the increased demand on banks’ internal resources and capacity as a result of the COVID-19 crisis; and
2. have banks take into account the effects of COVID-19 when considering their obligations under the Code.

The temporary changes are effective from 1 July 2020 and run until 1 March 2021 (Temporary Period).

Timing Requirements

• Prior to the temporary changes, a bank would be in breach of the Code if it failed to comply with strict timing requirements contained in the Code, including, for example:
• paragraph 101(b) – the timeframe for a bank to give notice to guarantors if the borrower has advised they are experienced financial difficulty which has resulted in a change to their loan;
• paragraph 101(c) – the timeframe for a bank to give notice to guarantors if the borrower is in continuing default for more than 2 months after the issuance of a default notice to the borrower;
• paragraphs 102 and 148 – the timeframe for a bank to provide documents to the customer / guarantor if requested;
• paragraph 164 – the timeframe for a bank to respond to a request to discuss the customer / guarantor’s financial difficulties;
• paragraph 205 – the timeframe for a bank to inform a customer / guarantor it requires more time to investigate a complaint.

Now, during the Temporary Period, a bank will not be in breach of the Code if it has made good faith efforts to meet the timing requirements contained in specified provisions but has been unable to do so.

However, during the Temporary Period, banks will need to comply with the following obligations regarding complaints made by customers / guarantors:

1. when acknowledging a complaint, a bank must advise of the possibility of delays to the usual required notifications during the process; and
2. a bank must inform the complainant, within 45 days of the complaint (or such other time as specified for the relevant dispute in ASIC’s Regulatory Guide 165), of the complainant’s rights to apply for external dispute resolution if the bank has not resolved the complaint.

Notwithstanding these temporary changes to compliance with timing requirements, banks will still be required to comply with the substantive obligations in the relevant provisions of the Code.

Consideration of the effect of COVID-19

The “Special Note” acknowledges that the impact of COVID-19 may be relevant to banks’ obligations under the Code when considering providing new or increased loans to small businesses – in particular to:

• the inherent difficulties in making predictions for matters such as the pace of economic recovery; and
• assessing a customer’s ability to service such loans.

As a result, during the Temporary Period, a bank’s obligation to engage with its customers and relevant guarantors in a fair, reasonable and ethical manner, and to exercise the care and skill of a diligent and prudent banker, will necessarily be informed by these matters and the effects of COVID-19 generally.

This article is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters.